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Get ready for Taxmageddon

By Ed Orlet

According to the Washington Post’s Ezra Klein, there’s a new word in the Capitol Hill lexicon: Taxmageddon. At the end of 2012, a number of tax provisions are scheduled to change, expire or go into effect that could have an unknowable impact on the slowly recovering economy. These provisions include:

  • Increase in the top marginal estate tax rate from 35 percent to 55 percent
  • Increase in individual tax rates
  • Expiration of the “payroll tax holiday”
  • Increases in tax rates on capital gains and dividend income

A number of these provisions are routinely extended at the last minute. Cuts to Medicare providers have been an issue since they were first enacted in 1997, but they have never happened. Policy makers call this the “doc fix,” which seems to indicate they never actually plan to cut the rates.

Congressional Republicans are working to avoid the cuts to military spending they agreed to in the recent debt ceiling debate. Some are estimating the debt ceiling will need to be raised again before the election, but that’s a crisis unto itself. Take a look at this chart via Klein’s Wonkblog from the Courtesy of the Committee for a Responsible Federal Budget.  It details the changes scheduled to lead to Taxmageddon:

If you haven’t noticed, this is an election year. With divided government in DC, any progress towards averting Taxmageddon prior to the election is, let’s say, unlikely. Add to this “budgetary free-for-all” the United States’ recently earned dubious distinction for having the highest corporate tax rate on the planet, and you can see that the stakes of this debate will be very high.

While many policy makers—including the president—have called for cuts to the corporate tax rate (and elimination of “loopholes” read: deductions), Profit Planning Group estimates that more than half of NAED member companies function as “pass-through entities.” So cutting the corporate rate, raising the individual rates and limiting deductions will actually amount to a devastatingly large tax increase on pass-throughs.

Another variable for distributors to worry about in tax/budget reform is LIFO repeal. Repeal was once again included in the president’s budget blueprint and it will be in play during the coming tax fight. Some policy makers paint LIFO as an “oil company tax break” since energy companies hold the greatest amount of LIFO reserves. Unfortunately, electrical distributors must avoid being collateral damage in the war against “Big Oil.”

Election day is November 6th. The House of Representatives has scheduled 16 legislative days for its lame-duck session before the end of the year and Taxmageddon. That’s not a lot of time. If you thought the debt ceiling debate was the height of hysteria, you ain’t seen nothin’ yet.

Get involved in the issues that impact your business. Join other NAED members as they take their voices to Washington during the 2012 NAED Congressional Fly-in happening July 11-12. NAED staff will help prepare you with scheduling, training and background information. All you need to do is register is visit http://www.naed.org/NAEDFlyIn/ and attend.

Ed Orlet is vice president, NAED Government Affairs. Contact him at governmentaffairs@naed.org.

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