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19 Tax Changes in the Obama Budget

February 18, 2010

By Oregon Tax News,

This month President Obama released a budget plan that emphasizes new spending freezes and fiscal accountability but comes with an extraordinary price tag.   Overall, the budget reveals federal spending will grow to $3.72 trillion dollars in the 2010 fiscal year and will increase to $3.83 trillion in 2011.  The Obama Administration plans to add $25 billion in new state spending for Medicaid.  Also in the works is another jobs stimulus spending, but this time targeting low-income family programs such as health research, heating, and education.  An extension of entitlements to future generations can be seen in a small budget shift that puts the Pell Grant program, used to aid college students, into the mandatory spending column.  This transition will cost $307 billion over 10 years, which makes it an entitlement similar to social security.

Here is a sample of 19 tax changes and increased complaince costs in the president’s budget.

1.  Taxes on high-income earners will rise by nearly $1 trillion over the next 10 years.

2.  The top two income-tax rates, which affects people earning more than $200,000 a year, or $250,000 for married couples, will be  rise from 33% and 35% to 36% and 39.6%.

3.  The budget raises capital gains and dividends from 15% to 20% for people at higher income levels.

4.  The budget limits upper-income taxpayers’ ability to claim personal exemptions and itemized deductions will increase.

5.  The budget decreases the value of benefits from deductions for mortgage interest and some charitable contributions from 39.6% to 28%.

6.  $122.2 billion budgeted in new revenue via a reform of the U.S. international tax system, which is a giant tax increase on American companies that operate overseas.

7.  Fund managers will see their partnership profits taxed at ordinary income rates, rather than the lower capital-gains rate, under President Obama’s proposals.

8.  The budget permanently reinstates the estate tax.

9.  The budget places new limits on the use of family trusts that help higher income families lower their estate-tax liabilities.

10.  Obama’s budget will phase out the payroll tax credit he campaigned on that increased worker paychecks by $400 per person in 2010 by the year 2012.

11.  The Obama budget projects new compliance “reforms” that will raise $13.8 billion to close the so-called “tax gap” over the 10-year budget window.

12.  $7.4 billion budgeted to improve compliance by businesses.

13.  $4.4 billion budgeted to strengthen tax administration.

14.  $36 million budgeted in increased penalties.

15.  $23.7 billion budgeted in backdoor death tax increases.

16.  Corporate Information Reporting requires all corporations must file 1099-MISC statements — estimated to cost $9.2 billion.

17.  Landlord Information Reporting forces owners of rental properties must also file 1099-MISC forms costing them an estimated $3.1 billion.

18.  Independent Contractor Discrimination enforces new regulations that will permit the IRS to re-classify independent contractors, which will cost an estimated at $7.3 billion.

19.  The Economic Substance Doctrine gives more power to the IRS to determine that a transaction used to lower a tax bill “lacks economic substance.”  This arbitrary standard, and will subject every small business decision to the discretion of an IRS auditor and could raise by estimates $4.2 billion.

  
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