Tax Changes Going Retro

Businesses are crying foul, and are all up in arms over new legislation proposed by the Democratic Party and some Republicans in the Senate. These businesses are saying that the Senate bill would add to current anti-competitive legal cost burdens for manufacturers. The Senators are saying that they are not increasing taxes, but just offsetting tax cuts while they increase the minimum wage from $5.15 to $7.25 in the same legislation. Offsetting tax cuts is raising taxes, so they are spinning the words to make it sound more appealing. With this $8.3 billion Senate tax bill, there will be more excessive regulations, and stop or significantly stop companies from being able to retain key workers.

Now as the average American your first comment is, well it deals with businesses, and not me. Do not jump to that conclusion quickly. First and foremost, they are currently refusing to renew many of the tax cuts of 2001 and 2003. These tax cuts include the marriage credit and the child care and child education credits. Those tax credits will have a huge effect onto the average family. Without the marriage tax credit, the married family actually will pay more in taxes dollar for dollar than singles living on their own, which does not seem to make a lot of sense since the goal is to have families buying homes, being stable, and not to increase a divorce rate. A quick note, on why I mentioned divorce rate, is that through studies and through the history of divorces it has been found that the major reason for divorce has been financial arguments and dissatisfaction. Without the child care credit, fewer families would be able to afford to have two jobs, or single parents will be more strapped to pay for child care while working. This in itself will be a major blow, to families with children, on the family's financial stability.

The Senate is being criticized for eliminating the tax deductions for punitive damages and restrictions on certain deferred compensation plans for Corporate CEOs. With this minimum wage increase, the House of Representatives only offered 1.3 billion dollars in tax cuts for businesses over ten years where the Senate version is 8.3 billion in tax cuts while eliminating tax incentives and breaks currently in place, and changing other legislation to increase Federal revenues. News broadcasts, and political figures are calling this the largest tax hike in history. Keep in mind that if a business makes "x" amount of money, and will take "a" amount out to pay stock holders, then has to pay the current taxes, plus add on "b+b1" then there will be less money for hiring employees?

This obviously is a simple table to look at, but let me show you simply what will happen. Company "hij "sells gizmo add-ons and forecasts 1 million pieces for the following year. They sell them for $10.00 each. Generic cost to do business before labor is $8, 150,000.00. That leaves $1, 850,000 for employees. The CEO makes $500,000.00 annually, so this leaves you $1,350,000 for employees. Let us assume that every employee is paid the new minimum wage. This would allow the company to hire 90 employees, without paying any benefits or social security taxes. The old minimum wage would have allowed 126 employees, so that means this company just let 36 employees go. The reason for this was to show that with these increased pay rates, along with the increase in regulations equals a loss of 1 out of every 5 new employees, plus the loss of more full time positions, and less benefits paid to the employees. The actual numbers can change, but the end result is that there will be a loss of current employees, a loss of full time positions, and fewer new hires. This will have a domino effect on the economy, which in turn will be multiplied over and over, which in turn will hurt the small mom and pop businesses.

The House of Representatives and the Ways and Means committee chaired by Charles Rangel held hearings so that they can better understand the issues with the Senate's revenue changes. Charles Grassley, a Senator from Iowa, blasted the hearings as a chance for all the lobbyists could complain and cry. Businesses are not happy with limiting of deferred payment programs, which are used to retain the CEOs, the limiting of changing debt instruments into stock if the instrument holder wanted to, to elimination of interest deductions available on those convertible bonds, retroactive tax hikes on cross border leasing transactions, loss of tax exempt property lease in foreign countries, which worries businesses that if they go retroactive on one item, that the government would then consider doing it in other areas.

There were some major tax breaks for businesses which included a five year extension on the Work Opportunity Tax Credit, and a more generous recovery over 15 years for remodeling of leased stores, restaurants, and buildings. Obviously there are some major changes that are arguable if they may or may not hurt the economy, but the tax credits currently in place that would not be extended like the child credit and marriage credit will do severe damage to the financial stability of the middle income married couple with children.

For more information concerning the changes, you can go may want to go to The Library of Congress by Thomas and look up the following: H.R. 2 tax bill, Amendments for H.R. 2, Related bills to H.R. 2