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“In the Know”
FEI’s Private Company Roundtable Email Update
August 27, 2010
While Washington D.C. in August may seem like a ghost town, the wheels of government are always moving one way or another. Members of Congress adjourned a few weeks ago to head back to their districts to campaign ahead of the midterm elections, but legislative business looms in the shadows as the long, hot summer comes to a close. Congress certainly could have a full legislative agenda ahead, but it is uncertain if any significant proposals will be tackled due to the exhaustion that the American public is expressing towards elected officials.
This edition of In the Know will focus on the tax cuts that are due to expire on December 31, 2010, that were part of the 2001 and 2003 packages from President George W. Bush. The Issue Analysis section will focus on the expiration of these tax cuts and how they could affect you and your business. Look to the Call to Action section to find out how you can get involved by contacting your elected members of Congress to raise support for this vital and timely issue.
The next Private Company Roundtable call is scheduled for September 29, 2010 at 2:00pm eastern. If you have not yet signed up for the call, please do so by going to the events tab on the FEI homepage and choosing the Roundtable event under committees. The agenda for the call will be released in the next few weeks. FEI would also encourage you to fill out a survey of policy issues (if you have not already done so) that are on the radars of private companies. This was sent out two weeks ago, but FEI wanted to offer once last opportunity to find out what is on the minds of private companies.
We look forward to speaking to you at the end of September.
Sincerely,
Tim Anglim
Co-Chair, Private Company Roundtable
Don Robillard
Co-Chair, Private Company Roundtable
Issue Analysis: Will the Bush Tax Cuts Stay or Go?
With a very busy second session of the 111th Congress coming to a close, the United States House of Representatives and Senate continue to make significant legislative strides before the midterm elections. The midterm’s outcome could potentially shift power from the Democrats back to the Republicans. A major unsettled policy issue is what to do about the controversial “Bush Tax Cuts”. During the administration of President George W. Bush, there were two major tax growth bills. These 2001 and 2003, tax packages (the Economic Growth and Tax Relief Reconciliation Act or 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003) cut taxes across the entire board for earned income, long-term capital gains and dividends. The majority of the provisions sunset (or expire) on December 31, 2010.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) used six tax brackets for earned income. These include 10%, 15%, 25%, 28%, 33%, and 35%. If the tax cuts are not extended, the 10% bracket will disappear (returning to a 5 bracket system) and would move up to 15% (which would apply to those individuals making under $34,550.) The other rates would increase to 28%, 31%, 36%, and 39.6%. President Obama made a pledge to not raise taxes on those families making under $250,000 a year, so the likelihood of the tax cuts being extended is strong for the bottom four tax brackets. President Obama also supports making permanent the long-term capital gains rates of 0% and 15%, but plans to tax capital gains rates at a rate of 20% for those that fall in the top two tax brackets. Most Democrats and Republicans support this pledge. What is not clear, and what is causing the most debate in Congress currently, is extending the tax cuts for those making over $250,000. Republicans support extending the tax cuts for all brackets, while most Democrats support extending the tax cuts in all but the top two brackets.
What many in Congress fail to realize is the fact that two-thirds of America’s small businesses are impacted by the upper tax brackets. With an already fragile and reeling economy, Congressional leaders are seeking changes that would further damage the system that is only now beginning to recover. Business owners that pay the top tax rate employ over 25 percent of all American workers, and it is these businesses that will be the first to hire new workers when they can afford to do so. They are already responsible for 60 percent of the net new jobs created in the United States. (Source: National Association of Manufacturing)
The increased tax rates would be on top of a 3.8% “hi-tax” for Medicare that will be tacked onto high-income earners’ investment income starting in 2013. Capital gains, dividends, interest, annuities, royalties and rents are some examples of the investment income that would be taxed.
Congress is due to come back into session in mid-September for just a few weeks prior to the midterms. It is uncertain if the Bush tax cut extension debate will happen then or after the midterm elections during a lame duck session of Congress. This could include a larger tax legislative picture that includes not only the Bush tax cuts but also the research and development credit, the estate tax, and potential international reforms. What is known is that without action- all tax rates will go up on New Year’s Day 2011.
Call to Action:
While no specific legislation is currently being discussed in Congress, the Bush tax cuts will expire on December 31, 2010, unless Congress takes action. As members of the Private Company Roundtable, there is the opportunity to help positively impact the debate by contacting your elected officials and letting them know that the Bush tax cuts should be extended for all income brackets.
Let Congress know that:
· Higher individual tax rates will be detrimental to many private and family owned businesses.
· America’s small businesses are the backbone to a stable and vibrant economy.
· Two-thirds of small businesses fall within the top two tax brackets because of their ownership structure.
· Sixty percent of new jobs in the United States are created by small businesses.
· Not passing the Bush tax cuts will further stall the economy, at a time when unemployment is at the highest levels in decades.
If you do contact your elected members of Congress, please let Tyler Roberts in FEI’s Government Affairs office know that you have assisted in the effort to help extend the vital Bush tax cuts.
Upcoming Events/Roundtable News:
Our next Roundtable teleconference will be on September 29, 2010 at 2:00PM eastern. FEI will be sending out details in the coming weeks. Please stay tuned to your inbox for more information. To sign up, please go to the events tab on the FEI homepage and click committees to choose the Private Company Roundtable call on September 29th.
Other important items to keep on your calendar:
· On Sept. 20-21, FEI will hold its first annual Washington Policy Conference (WPC) at the Washington Court Hotel. The inaugural conference will bring together key business and government leaders who will provide insight into the policy questions facing senior financial executives and their companies. Featured speakers at this year’s WPC include: IRS Commissioner, Douglas Shulman, SEC Commissioner, Kathleen Casey; former U.S. Comptroller, David Walker; former Ranking Member of the House Ways and Means Committee, Jim McCrery; and former CBO Director, Rudolph Penner. Topics to be discussed include:
o Facilitating American Competitiveness through Tax Reform,
o U.S. Fiscal and Economic Policy and its Impact,
o Energy: Strategies, Policy & Best Practices for American Business,
o A Legislative & Regulatory Update for the C-Suite, and
o A diverse panel of FEI members will discuss “Policy Today and its Impact on American Business.”
To register for the conference, click here.
· If you have not filled out the private company survey, please click here. The survey will only take a few minutes to fill out and will assist FEI in determining which issues are important to private companies. You input in the survey will help decide the issues that the Roundtable will cover in the months and years ahead.
· FEI’s Committee on Private Company Standards (CPC-S) is responsible for monitoring and developing positions on accounting, auditing and related initiatives that impact privately held companies. As a technical committee of FEI, CPC-S formulates private company positions for FEI and reviews and responds to research studies, statements, pronouncements, pending legislation, proposals and other documents issued by domestic and international agencies and organizations that impact private companies.
Some CPC-S members serve on standard-setting advisory groups such as the on Private Company Financial Reporting Committee and the “Blue-Ribbon" Panel on Standard Setting for Private Companies (BRP). The BRP is seeking written input from constituents in the form of responses to 7 questions. Your responses will assist the Panel in discussing how accounting standards can best meet the needs of U.S. users of private company financial statements and making recommendations thereon to the FAF Board of Trustees.
For further information on the Private Company Roundtable, or to discuss upcoming events, please contact Tyler Roberts, Policy Analyst, at troberts@financialexecutives.org or 202.626.7807.
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