Worries Over Tax Hikes Coloring Business Decisions

From the Wall Street Journal:

The uncertainty over looming tax increases is starting to affect both investing and corporate decision-making.

The economy remains the biggest factor in many investors' and businesses' decisions. But worries over whether Congress will extend some of the expiring Bush-era tax breaks are emerging as another important one.

Stock prices of utilities, for example, recently have appeared to be factoring in the possibility of significantly higher dividend taxes next year, several analysts say. Some companies are pumping up dividend payments this year to beat the possible 2011 tax increase, and their shares have rallied.

Small-business owners say unease about tax policy, along with the economy, has led them to hold off on hiring and investment. And many advisers are encouraging well-to-do clients to sell appreciated assets to avoid higher capital-gains taxes.

Congress hasn't decided how to address the tax cuts from the George W. Bush administration, which are set to expire Dec. 31. President Barack Obama proposes to allow taxes on dividends and capital gains to rise to 20% from the current 15% for higher earners, defined as families with incomes of more than $250,000.

But many congressional Democrats want to let dividend tax rates, along with ordinary income rates, rise next year for higher earners to as much as 39.6%.

Up in the Air: Your Taxes

The year is now half over, and a handful finance experts have taken note of the huge tax to-do list on Congress’ agenda for the rest of the year. The Wall Street Journal recently put together a detailed and lengthy list of the tax issues Congress is scheduled to take on in the next six months. You can find a section of the WSJ article on the topic below, or click here for the full text.

"I've never seen so many tax issues that need to be addressed in so little time," says Lindy Paull, a former top congressional tax staffer now with PricewaterhouseCoopers.

If lawmakers don't act, estate taxes will rise, the alternative minimum tax will hit millions more taxpayers, and many useful benefits will expire. Tax rates also will rise for all, and for investors the top rate on dividends will jump to nearly 40% from 15%.

Congress has fewer than 40 working days left before the November election, with no lame-duck session scheduled.

Legislation is notoriously unpredictable, but here is where the big issues stand. If you are following the play by play, keep in mind that the Senate has been the bottleneck this year because of its leaders' difficulty in mustering a filibuster-proof 60-vote majority.

Estate tax. The now-lapsed estate tax will return in January 2011, with a 55% top rate and a $1.2 million exemption per individual, unless lawmakers act. It will hit about 44,000 estates, eight times as many as the 2009 version of the tax, according to the nonpartisan Tax Policy Center.

“The Tax Lady" Roni Deutch Offers Money-Saving Tips

The Wall Street Journal posted a new video of an interview I did over the weekend with Kelsey Hubbard. In the video I discussed my book, and also gave out some money-saving tax tips. Check out the embedded video below.

Obama's Oil Company Windfall Profits Tax and the Wall Street Journal's Celebration

From HuffingtonPost.com:

Friday's Wall Street Journal editorial, "Barack's Windfall Reversal," in barely contained gleeful terms crowed that a transition spokesman "explained this week that that the drop in oil prices to $50 barrel has made the windfall tax a dead letter." The editorial goes on to point out with degree of "I told you so" smugness, "left unexplained was why the oil companies suddenly decided to stop profiteering, or manipulating commodity prices."

Exactly the point. The oil companies were not manipulating commodity prices. Their role was limited to cheering on OPEC and lobbying our government to remain dangerously benign, playing ostrich to OPEC's manipulation of the oil market.

You see, cartels are most effective in rising markets where supply is relatively balanced or there is perceived shortage of supply, thereby causing the cartel's manipulations to be supportive toward ever-increasing prices. Discipline among cartel members is readily maintained in that revenue from lower production is made up from higher prices.

And as the oil hedge fund speculators got blown away this year and as the world's need for oil began to recede in the face of economic crisis, OPEC's control of the market began to fade in classic cartel tradition. As supply moves from shortage to balance and oversupply, control of the market begins to slip away from the cartel. Revenues from reduced production can no longer be made up from higher prices and the discipline of the cartel begins to collapse. The OPEC cartel has no enforcement capability in place to police production quotas of its members, and the propensity for cartel producers in analogous situations has most always been to "cheat" around the edges.

More than anything, the march to $147/bbl this year was in large measure due to the OPEC cartels success in manipulating the supply of oil on the world market. Its success was tantamount to a cartel imposed tax on consumers here and throughout the world. It had nothing to do with the free functioning of the marketplace. At this very moment OPEC is plotting to curtail production again at its scheduled December meeting in the hope of changing the free market dynamics of the market from current price softness (at the beginning of the Bush presidency the price was closer to $20/bbl so even here "softness" is relative) toward programming tighter supply and higher prices.

Should OPEC be successful in any way in regaining their hegemony over the market the new Obama administration should make it clear that the imposition of the oil windfall profit's tax will be applied forthwith, in that higher oil prices under these circumstances and in turn higher oil company profits have nothing to do with the workings of a free market.