We already know that individuals age 70½ and older will not have to take a “Required Minimum Distribution” from their pension plan or account (401k, 403b, 457, IRA, Keogh) in 2009 (although there is nothing stopping them from doing so if they wish). For more detailed information check out TAXGIRL Kelly Phillips Erb’s post “Retirement Account Rules Tweaked for 2009”
Since Barack Obama will be our next President let’s look at his campaign’s tax proposals.
The Democratic tax plank called for elimination of all income taxes for seniors making less than $50,000 per year, expanding existing refundable credits and creating new ones, directing the IRS to send pre-filled tax forms to 40 million workers who take the standard deduction and have a bank account and have them simply sign and return it with any tax due, and reverse the Bush tax cuts on the ‘wealthy”. Obama as a candidate also called for increasing the current special tax rate on capital gains and qualified dividends.
A Washington Post article titled “Obama Tax Cuts Likely Soon: Senior Adviser Says Middle Class Needs 'Some Relief Now'” reports that Obama “Senior Aide” David Axelrod told the Sunday morning political talk shows at the end of 2008 that BO’s economic “stimulus” package will include an immediate tax cut for “middle-class” families. The parameters of “middle class” in this context were not identified, although the $250,000 figure that Obama used during the campaign was mentioned elsewhere.
Axelrod expects that the stimulus plan will be ready soon after BO’s Jan. 20 inauguration, so tax “relief” for the target could begin early in 2009.
The article states that the President-Elect “is considering immediate tax cuts of $1,000 for couples and $500 for individuals, which would be delivered through reduced tax withholding from paychecks”. Permanent tax cuts for the “middle class” (here is where the $250,000 figure was evoked) will be included in next year’s budget proposal, but just exactly what these cuts will look like is not yet known. Chances are here is where the $50,000 exclusion for seniors and refundable tax credits might show up.
When asked if BO will reverse the Bush tax cuts on the “wealthiest” Axelrod replied, "Whether it expires or whether we repeal it a little bit early, we'll determine later, but it's going to go." This is, I believe, the first we have heard about the cuts just “expiring” at the end of 2010. I doubt if 2009 tax legislation will see an increase in the top brackets.
Considering the state of the economy I also do not think that BO will increase taxes on capital gains (if there indeed are any capital gains in 2009) or dividends.
While the initial “stimulus” package passed in 2009 will probably not contain any substantial tax changes, other than the $500 and $1,000 tax cut discussed above, I do think there will be a major tax bill by mid-year.
I would hope that any 2009 legislation will address once and for all the issue of the dreaded Alternative Minimum Tax by completely doing away with the abomination, as the Democrats attempted to do with Chuck Rangel’s mis-named “mother of all tax reforms” back in the fall of 2007. If nothing else the very least Congress should do is to enact a permanent “fix” instead of having to vote in a one-year temporary patch at the end of each year.
Along the same lines Congress should also eliminate the need for an “extender” of certain tax breaks every year or so. The concept of having to constantly vote to extend targeted tax breaks is ridiculous. I am talking about the adjustments to income for educator expenses and qualified tuition and fees, the option to deduct state and local sales tax instead of state and local income tax, the ability to make a tax-free direct transfer from a pension account to a charity, and other temporary tax breaks that are included in the annual, or semi-annual, “extender” bill. If Congress thinks these tax breaks are a good idea they should make them permanent.
While the tax portion of the 2008 Democratic Platform did include some token introductory comments on the complexity of the Tax Code, don’t look for any tax simplification moves in 2009. If anything the Tax Code will become even more complicated. If the first “Bail Out” bill is any indication, the bill introduced in early 2009 will probably also include a sh_tload of extraneous pork.
No matter what happens 2009 will be an “interesting” year for taxes - to say the least.
So what do you think BO and Congress will do to the Tax Code in 2009?