So what are the possibilities.

• One option is to raise the income and capital gains tax rates on upper income folks.  How much? Obama would like to see a top rate of 39.6% for income tax and raise the capital gains tax rate from 15% to 20% as well.  In addition, he would like to cap the amount itemized deductions can reduce a high income filer’s tax liability to 28%.  By the way, high income is something like singles with $196,000 in taxable income or $231,00o for married folks.
• A payroll tax increase is being kicked about.  Some are discussing raising the Medicare tax rate and also discussing having those with high incomes pay Medicare tax on unearned income.
• A graduated surtax is being bandied about.  A plan passed by the house in 2009 had the surtax start on incomes of Singles $280,000/$350,000 Married and had a top tax rate of 5.4% on Singles earning more than $800,000/$1,000,000 Marrieds.
• A consumption tax (VAT) is being discussed. If items like food are exempted then obviously the rate on other things would have to be made higher to offset the exempted items-the tax rate likely be 3% or more.
• Higher employment taxes on S-corporations is definitely in the works-both parties think that too many people are skirting employment taxes by taking income as dividends instead of pay.  Right now the rules let them.
• Expect more required reporting to find revenue targets, including corporations, landlords, and filers with overseas accounts.
• Tighter rules on independent contractors verses employees is a possibility.  Why try to pluck the feathers of many hissing geese when you pluck the feathers of just one?
• Of course the government could also reduce spending.  Don’t hold your breath, you will turn blue and pass out, just like your mother said.

You can expect at least one variation on these themes to be passed eventually, and which one(s) that do pass depend largely on which party is in charge when the legislation passes. Yes, these are controversial measures but the government has to pay the piper sooner or later and when it happens there are bound to be some very unhappy constituents.

What do you think can or should be done about the federal deficit?  Who should pay? Should entitlements be cut? What is your take on all this taxation and spending? Remember, even though this topic is a very sensitive subject, we at Art & Business Consulting would ask that you try to keep the name calling and vitriol to a minimum in this hopefully civil discourse.

As always, small business services and taxation are our business, if you need help with this issue or any others, Please give Art & Business Consulting a call.  We would love to engage you as a client.

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