Monthly Archives: October 2015

Low tax receipts point to Nov. 5 debt deadline

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate


Congress has until Nov. 5 to raise the federal debt limit. If lawmakers don’t act by then, Uncle Sam won’t be able to pay his bills.

The deadline was set by U.S. Treasury Secretary Jacob Lew in an Oct. 1 letter to the Republican and Democratic leaders on Capitol Hill.

The debt limit is the amount of money that the United States can borrow to meet its existing legal obligations. These include payments of Social Security and Medicare benefits, military salaries, interest on the national debt and tax refunds.

Uncle Sam’s credit limit

The debt limit is not to cover new borrowing, but debts that have already been incurred.

Once upon a time in Washington, D.C., raising the debt limit was routine. Since 1960, Congress has agreed 78 times to permanently raise, temporarily extend, or revise the definition of the debt limit. Those increases have come under a Republican administration 49 times and while a Democrat was in the White House 29 times.

In recent years, however, the process has become politicized.

Members of Congress have used the debt ceiling deadline as a way to pressure colleagues and the president to accept other legislation. This happened in 2011 and 2013, with the U.S. borrowing authority going down to the wire in both cases.

Limits on extraordinary measures

In anticipation of possible problems with raising the debt ceiling, the Treasury secretary can use what are called “extraordinary measures” to slow the impending default.

These include such things as not investing fully in federal employee retirement funds and delaying securities rollovers. Essentially, it’s Uncle Sam’s large-scale version of robbing Peter to pay Paul.

Those measures, however, will only last into early November, warns Lew.

Lew says that “on or about Thursday, November 5 … we would be left to fund the government with only the cash we have on hand, which we currently forecast to be below $30 billion.”

That’s only around half of what the federal government needs on certain days, writes Lew.

Not enough tax money

Part of the reason that Uncle Sam is running out of money, says Lew, is that the recently paid quarterly corporate and individual tax amounts were lower than Treasury projected.

At the same time, Lew says, investments in certain large trust funds, including military retirement trust funds, were higher than projected.

Uncle Sam’s bottom line: We’re heading into the red.

Will lawmakers with specific legislative agendas hold the country’s financial stability hostage? Maybe. It has happened before.

In his letter, Lew warns against such politicking, saying it could cause “catastrophic damage” to the U.S. economy and global financial markets if, for the first time in history, America fails to meet all of its obligations. Lew also warns that simply waiting until the deadline is imminent also is unwise.

“Moreover, we have learned from previous debt limit impasses that failing to act until the last minute and engaging in partisan brinksmanship can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” writes Lew. “To remove these unnecessary and avoidable threats, I respectfully urge Congress to take action as soon as possible and raise the debt limit well before Treasury exhausts its extraordinary measures.”

Congress now has less than a month to act. We’ll see how seriously representatives and senators will take Lew’s pleas.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Trump’s ‘amazing’ tax plan is nothing new

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

Donald Trump says his new tax plan will cost him a fortune. Why don’t I believe that?

The Donald today released his proposal to overhaul the tax code. He has some interesting ideas.

Most of them, though, have been proposed, and a few were even implemented before with little success.

Fewer brackets, lower rates, less deductions

Trump wants to eliminate federal income taxes on individuals earning less than $25,000 and married couples earning less than $50,000.

At tax filing time, according to Trump, taxpayers under these filing thresholds would “get a new 1-page form to send the IRS saying, ‘I win.’”

Everyone else would face tax rates of 10%, 20% and 25%. Trump’s new top tax rate, which would replace the current 39.6% rate, would apply to single filers making more than $150,000 and married couples with adjusted gross income of $300,001 and above.

“With this huge reduction in rates, many of the current exemptions and deductions will become unnecessary or redundant,” says Trump.

Folks falling into the 10% bracket will keep all or most of their current deductions. At the 20% bracket, taxpayers get to keep more than half of their current deductions. The top tax rate filers will keep fewer deductions.

This looks to be very similar to the existing itemized deduction phaseouts already in place.

And even The Donald trembles a bit when it comes to cherished tax breaks. Charitable giving and mortgage interest deductions remain unchanged for all taxpayers in the Trump tax plan.

Businesses and wealthy benefit, too

Trump is proposing lowering the corporate tax rate from 35% to 15%. This would make international companies more competitive globally, he says.

But Trump wants to make sure that the lower rate doesn’t just apply to larger companies. Under the current tax code, income earned by freelancers, sole proprietors, unincorporated small businesses and pass-through entities are taxed at their personal income tax rates, which could be as high as 39.6%.

Under the Trump plan, a new business income tax rate within the personal income tax code will match the 15% corporate tax rate.

Plus, there is no estate tax in Trump’s tax world. I’m sure his kids are thrilled about that provision.

Losing loopholes to pay for a simple tax plan

To offset all these cuts, Trump is relying on the elimination of most tax deductions and loopholes.

As noted earlier, many individual tax breaks are phased out as people earn more. And since under the current tax system, it’s mostly richer filers who itemize and use many of these tax breaks, they would indeed pay more of a tax price.

But leaving the mortgage interest deduction alone, while a smart political move, keeps one of the more costly individual tax breaks in place.

True to his slam on hedge fund managers whose earnings, characterized as carried interest, are taxed at lower capital gains tax rates, Trump does propose that some of them pay more taxes. But not all of them.

Trump’s plan targets carried interest for “speculative partnerships that do not grow businesses or create jobs and are not risking their own capital.” Other such arrangements would still enjoy the lower tax rates.

So hedge funds that are deemed good will still get favorable tax treatment. Got it. I can’t wait to read the regulations in this area.

Trying trickle-down again

Basically, though, much of the Trump plan relies on a reworking of trickle-down economics.

The success of the plan is based on economic growth that the Republican presidential nominee front-runner says will average between 3% and 6% a year. That, he contends, will help everyone.

“I actually believe they’ll do better, because the economy will grow,” Trump said, with “they” being middle-class taxpayers. “It’ll grow rapidly, and we’ll have something very special. If we have more than 3(%), these numbers are really spectacular.”

The devil, as they say, is in the details. And right now the details look very similar to ideas that have been floated in past and even this year’s presidential campaigns.

In fact, some analysts have noted that Trump’s proposal offers even more cuts for the rich than does the plan offered earlier this year by former Florida Gov. Jeb Bush, the establishment candidate that Trump loves to trash talk.

The reality is that Trump, ever the showman and salesman, is taking old ideas that haven’t worked and dressing them up as a shiny, new, “amazing” tax code. What’s really amazing is that he keeps getting away with such stunts.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.