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Budget Control Act of 2011

The Budget Control Act of 2011 was passed by President Obama on August 2, 2011.  This Act was established to reduce federal spending and reduce the federal deficit over the next 10 years.   This law creates a bipartisan joint select committee on deficit reduction.  This committee’s mandate under the new law will be to draft additional deficit reduction legislation, to be voted on by congress.  The committee will likely propose tax law changes, as part of its deficit reduction mandate.  Below are items that will be considered and could potentially become part of a new tax bill.

Individuals

• Additional Individual income tax brackets ranging from 8-12 percent, 14-22 percent, and 23-29 percent
• Abolishment of the alternative minimum tax (AMT)
• Limiting the charitable deduction for individuals to amounts over two percent of adjusted gross income
• Further limitations on the amount of home mortgage interest that is deductible
• Repealing the state and local tax deduction for individuals
• Repealing all miscellaneous itemized deductions for individuals
• Capping the income tax exclusion for employer-provided health insurance
• Increased taxes on capital gains and dividends
• Raising the federal gasoline tax by 15 cents per gallon

ESTATE

• Estate tax sunset provisions may expire if no Congressional action is taken
  • Tax rate would increase from 35 percent to 55 percent
  • Estate tax exemption would decrease from $5 million to $1 million

BUSINESS

• Corporate tax rates will be lowered to somewhere between 23 to 29 percent while promising to raise as much revenue by eliminating many business deductions, credits, and other preferences such as Section 199 production activity deduction, LIFO method of accounting, and certain oil and gas production incentives.
• Switch from a worldwide to a territorial based international tax system.  Currently, the U.S. tax system is a worldwide system whereby companies registered as U.S. domestic companies are subject to taxation on all income regardless of where it is earned.  Under a territorial tax system, the profits are only taxed by the country where the income is earned.

The joint committee will make its recommendation in late November and Congress will vote on them before the end of 2011.

We will be following this process and will keep you informed of any new tax legislation.  Please contact your Alpern Rosenthal consultant with any questions you may have.

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• If you would like to discuss these topics in detail, please contact Darin G. Schindler, CPA, CSEP, CR.FA.
• For the latest tax updates, follow us on Twitter at http://twitter.com/alpernrosenthal