2013 Tax Predictions (per the Wall Street Journal)

Laura Saunders, writing for the Wall Street Journal, recently published the article "What Will Tax Rates Look Like in 2013?" From the article:

What will be the top rate on income for 2013?

Almost all the experts expect the top income tax rate will remain 35%, perhaps as a result of a one-year extension of current rates, although a few think it could be as high as 40%.

What will be the top rate on long-term capital gains for 2013?

Almost all expect the top capital gains rate will hold at 15%, with two guessing 20%. (This excludes the 3.8% tax on investment income taking effect for some in 2013.)

What will be the 2013 estate-tax exemption and the top estate- and gift-tax rate?

All believe the exemption will remain $5 million; most believe the rate will remain 35%, with a very few guessing 40% or higher. "The estate-tax rate is more likely to change than the exemption," says Clint Stretch, a principal with Deloitte Tax in Washington.

When will we know what the 2013 tax rates will be?

Not soon. Nearly all expect the rates won't be set until December 2012 at the earliest, and possibly well into 2013—although one lone soul thinks Congress could pass a one-year extension of the 2012 rates before the election.

"Whatever the date, it will be late enough to cause chaos for payroll preparers and the IRS," says Chris Bergin, publisher of the journal Tax Notes.

Will there be fundamental tax reform in 2012?

Not a chance, say the experts. On this point, they were unanimous.

Gov. Gregoire’s proposal for B&O tax simplification.

Governor Gregoire has recently announced a proposal to streamline local B&O Tax administration. Currently, there are at least 39 Washington cities that impose and administer their own local B&O taxes which are in addition to the Washington State B&O tax.

The Governor's proposal would run all state and local business licensing and renewal through the state Business Licensing System which is operated by the Department of Revenue. Additionally, the Department of Revenue would take over the administration of local B&O tax collection from the 39 cities but each local authority will be able to continue setting its own rates.

The Governor believes that these simplification measures will reduce the regulatory burden on small businesses and thereby help those businesses create more jobs.

The Governor's proposal can be found here.

Update on Tuesday, January 10, 2012 at 8:40AM by Jess Monnette

Governor Gregoire's press conference can be found here.  She discusses her B&O Tax proposal starting at about the 3 minute mark. 

2012 Presidential Hopeful Tax Plan: Santorum

The highlights of Rick Santorum's plan for taxes: (info taken from his website here.)

1. Personal Income Taxes: Two tax rates à 10% and 28%
2. Eliminate the Alternative Minimum Tax (AMT)
3. Eliminate the Death Tax
4. Lower Capital Gains and Dividend tax rates to 12%
5. Triple the personal deduction for each child
6. Retain deductions for charitable giving, home mortgage interest, healthcare, retirement savings, and children
7. Eliminate the cap on deductions for losses incurred in the sale of a principle residence
8. Cut the corporate income tax rate from 35% to 17.5%
9. Eliminate the corporate income tax for manufacturers (from 35% to 0%)
10. Increase the Research & Development Tax Credit from 14% to 20%
11. Eliminate the tax on repatriated taxable corporate income (from 35% from 0%) - when manufacturers invest in plant and equipment; and reduce the corporate tax rate from 35% to 5.25% on other repatriated income and allow for 100% expensing for new business equipment

Update on Thursday, January 19, 2012 at 1:36PM by Jess Monnette

The Tax Policy Center has some interesting analysis on the impact of Rick Santorum's tax plan. 

The Santorum Plan: Tax Cuts for (Nearly) All.  From the Article:

"According to new estimates by my colleagues at the Tax Policy Center, the former Pennsylvania senator would cut taxes for nearly all households making $40,000 or more. But the impact on the deficit would be enormous: He’d cut taxes by roughly $1 trillion in 2015 alone."

So, what is wrong with a VAT?

The VAT is generally believed to be, from a policy perspective, a sound method of taxation. It is a broad based tax with a (hopefully) low uniform rate. The simplicity of the VAT allows a reduction in compliance cost (e.g. no more H&R Block) and accounting and it reduces market-distortion. The VAT is a broad based consumption tax that applies equally to every person that purchases products. For example, if the VAT is 10% on a piece of furniture then everyone from Warren Buffett to your poor old granny will pay 10% on that piece of furniture.

There are advocates that argue in favor of the VAT on both sides of the political spectrum. Many (primarily on the left) advocate that the VAT should be implemented in the US as a supplement to a "progressive income" tax system. Others (primarily on the right), believe that the VAT should only be introduced if it completely replaces the current income tax.

Some believe that a fundamental problem with the VAT, however, is that it is a tax generating (revenue) machine. An American VAT has the potential to greatly increase government revenue which will simultaneously allow for increased government spending. Those that tend to criticize the expansion of government tend to disfavor the VAT. Also, because of its broad base, even minor increases in the VAT percentage rate result in tremendous increases in government revenue.

The Value Added Tax (VAT): What is it?

The Value Added Tax (VAT) is a system of taxation which has been getting a lot more press in the US lately. VATs are currently in many countries around the world, most notably in Europe.

The VAT is a type of national sales tax which is levied on "value-added" at each stage of production. That means that each different "producer" throughout the chain of manufacture pays the tax at each different stage of production. The tax rate is single and it is a consumption based system.

Daniel J. Mitchell explains it like this:

Consider a piece of furniture: The VAT would be imposed when the raw timber is sold, when the sawmill produces lumber, when the manufacturer builds a chair, a tax at the wholesaler level and then when a retailer sells the chair to a consumer.

In order to avoid double taxation, each seller gets a credit for the taxes paid by the earlier stages of the production process. When the end consumer purchases the product at the retail store, it pays the final tax levy.

Many analysts favor the VAT because it reduces economic distortion in the market-place and is a far more simple system than our current income tax.