Negotiations on a legislative solution to avoid the pending fiscal cliff continue between the White House and House Republicans.
Yesterday House Speaker John Boehner (R-Ohio) unveiled his “Plan B” approach that the House will likely vote on today. By piggybacking on a bill already in the pipeline, Boehner’s proposal can move quickly to the floor for a vote and then back to the Senate.
The vehicle for the legislation is H.J.Res. 66, the “Senate Amendment to Approving the renewal of import restrictions contained in the Burmese Freedom and Democracy Act of 2003.”
Included in Boehner’s Plan B is a repeal of the current estate tax, replacing it with a permanent, inflation adjusted, $5 million exemption level with a 35% top rate, spousal transfer, and stepped up basis. This differs greatly from the President’s estate tax plan that simply reinstated the 2009 estate tax levels, with a $3.5 million exemption, and a 45% rate. If Congress were to do nothing, the estate tax would revert to the pre-2001 level of a $1 million exemption and 55% rate.
As reported in the media, Plan B would allow the tax rates on income over $1 million to rise to 39.6%, a provision that would apply to many small businesses organized as a pass through entity. It would also extend the section 179 expensing for small businesses ($250,000 and indexed for inflation); permanently extend the Alternative Minimum Tax (AMT) from hitting middle class families, and extend parity for capital gains and dividend taxes, preventing dividend taxes from being taxed at the highest rates.
ACCA and its allies will continue to monitor the negotiations between the House and Senate leadership and the respective tax-writing Committees, emphasizing the importance of the implications of the estate tax, the small business expensing allowances, and the proposed top level income tax increase on small businesses.
More than 50 other tax incentives are set to expire on December 31 if Congress does not take action, along with billions in spending cuts. As is typical with Congress over the last decade, there won’t be much time left on the clock if and when they do come to an agreement.
Charlie McCrudden is ACCA Vice President for Government Relations.