Business Owners Jumping Ship Before Tax Hikes
By BRIANNA EHLEY,
Posted: November 02, 2012
A potentially steep hike in the capital gains tax rate is prompting some business owners to sell their companies before the end of the year.
The Wall Street Journal’s John McKinnon reports that because of the concern over an increase in capital gains rates and uncertainty more generally over tax policy, many business owners, mostly founders who could gain a lot from a sale, are looking to close deals by the end of the year.
Unless Congress and the president reach a deal during the lame duck session, the maximum tax on investment income will rise from 15 percent to as high as 25 percent on capital gains effective Jan. 2. If Congress fails to act, the tax on investments would rise to 20 percent, with an additional 3.8 percent under a provision in the Affordable Care Act. Then tack on the expiration of other tax breaks for high earners and you’re up to a maximum investment tax of 25 percent.
Republicans favor an extension of the 15 percent tax rate, which would bring the top tax rate to 18.8 percent with the Obamacare charge. Meanwhile, President Obama has proposed letting the top capital gains tax rate rise to 20 percent on high income earners, and retaining the current 15 percent for those earning under $250,000 a year. - Read more at The Wall Street Journal
AMERICAN EXPRESS WORRIED ABOUT THE CLIFF
Now it’s American Express that is fretting aloud about the fiscal cliff . The New York Times’ Michelle Leder reports that American Express’ quarterly report filed on Wednesday included a new warning about the threat of a big year-end boost in taxes and government spending cuts. “In the absence of legislative action, there continues to be growing concerns about the potential impact of the ‘fiscal cliff’ arising from scheduled federal spending cuts and tax increases set for the end of 2012,” the report said. Daniel Henry, chief financial officer of American Express, said the company is keeping close tabs on the situation and is well prepared for whatever may come. “If things were to be better, we know exactly what we’d do. And if things were to be worse, we know exactly what we’re going to do. So we will monitor this closely,” Henry said. - Read more at The New York Times
KRUGMAN: GOP COULD PUSH US OFF THE CLIFF
The Republican Party is “holding America hostage,” according to the liberal columnist Paul Krugman of The New York Times, who wrote in his blog on Wednesday that placing blame on President Obama for the threat of a year-end fiscal crisis “reflects GOP intransigence.”
Krugman’s column refers to the ongoing, partisan fight over the extension of the Bush-era tax cuts, and says that the GOP is using the threat of a fiscal cliff as leverage in order to get the tax cuts extended for all income earners, a proposal the president said he will veto. Democrats want to preserve the cuts for families earning less than $250,000 and individuals earning less than $200,000 annually. If Congress doesn’t reach a deal by the end of the year, the tax cuts will expire for all earners. “If they can’t have what they want but can’t pass, they’ll tank the whole economy,” Krugman wrote. - Read more at The New York Times
WHY CLIFF DIVING IS THE BEST OPTION
Is concern over the fiscal cliff over-hyped and misunderstood? New York Magazine’s Jonathan Chait thinks so. Chait writes that the growing number of business executives sounding the alarm over the fiscal cliff and urging Congress to immediately intervene are “united by a lack of understanding of how this event that so terrifies them would actually work.” Chait thinks Congress should allow the scheduled $109 billion of defense and domestic spending cuts take place in January but then restore some of that spending later in the year. “If those policies stay unchanged for the entire year, they would harm the economy a great deal,” Chait wrote. “But if they only stay in place for a few weeks, or even a few months, the impact would be minor. Likewise, if you don’t eat anything for three weeks you could die, but if 6 p.m. comes and goes without dinner on the table, you don’t need to be scared.” - Read more at New York Magazine
DO-NOTHING CONGRESS SHOULD DO NOTHING
While business groups are sounding alarms over the fiscal cliff, Marketwatch’s Alicia Munnell argues that allowing the tax hikes and spending cuts to take effect would present an opportunity to reduce the deficit in a progressive way. “Some pain in the short term would produce a balanced package of taxes and program cuts, create enough revenues for meaningful tax reform, and set the stage for a much brighter deficit outlook for the long term,” Munnell writes. “One thing the Congress has demonstrated over the last several years is that it is very capable of doing nothing. Doing nothing may be the only way to introduce taxes into the mix of policies to reduce the deficit.” - Read more at Marketwatch
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