Right Vision News

May 30, 2010 Sunday

Virginia: Perriello Reports to the 5th District of Virginia

Richmond, May 30 -- The State Of Virginia has issued following press release:

One of my top priorities in Congress has been reducing financial burden on middle- and working-class families during these tough economic times. Last week, USA TODAY reported that Americans paid their lowest level of taxes in 2009 since Harry Truman's presidency. The news story reported: "Federal, state and local taxes - including income, property, sales and other taxes - consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century."

These findings bring more good news on top of a report released last month by Citizens for Tax Justice, which showed that 98% of working families and individuals in Virginia benefited from at least one of the tax cuts enacted by this Congress and signed into law. Most of these tax cuts are a result of the American Recovery or Reinvestment Act, or stimulus bill, which I supported. The report found that working individuals and families in Virginia received, on average, $1,229 from four tax breaks enacted by Congress.

In all, this Congress has enacted more than $800 billion of tax cuts. The major tax cuts fell into four major categories:

# Tax Cuts for American Families ($232 billion over 10 years): includes the Making Work Pay Tax Credit, a refundable tax credit of up to $400 per worker ($800 per couple filing jointly) and the American Opportunity Tax Credit, which I wrote, that covers up to $2,500 for the cost of college tuition and related expenses.

# Business Tax Incentives to Create Jobs ($10 billion over 10 years): includes extending the increased bonus depreciation for businesses making investments in new plants and equipment in 2009, and extending small business expensing, doubling the amount small businesses can immediately write off their taxes for capital investments and purchases of new equipment made in 2009.

# Tax Incentives for State and Local Job Creation ($26 billion over 10 years): for critical activities like school construction, low-income housing, and infrastructure development.

# Largest Health Care Tax Cut in History (Over $500 billion): the health insurance reform law contains the largest middle-class tax cut for health care in history, providing 40 million middle-class families with incomes up to $88,000 for a family of four with tax credits to help pay for health care coverage in the exchange. For a family of four making $50,000, the average tax credit will be approximately $5,800. Also provides $40 billion in tax credits for 4 million small businesses to help them offer coverage to their employees if they choose, starting this year.

I'm proud to have supported the largest middle-class tax cut in American history, which will not only allow Virginians to keep more of their hard-earned money, but give a much-needed boost to our small businesses as they rebound from the recession. We are on the path to economic recovery, but the unemployment rate remains unacceptably high. Our own region was hit with a devastating blow last week as Stanley Furniture announced its closing of its Henry County plant, resulting in the loss of more than 500 jobs. That's why I remain laser-focused on job creation and rebuilding America's competitive advantage, and reject an economic strategy centered on Wall Street. We won't rebound from this crisis overnight, but I have no doubt that America can lead the way in the industries of tomorrow if we make the right investments today.

For more information please contact plusnewspk@gmail.c Published by HT Syndication with permission from Right Vision News. For more information on news feed please contact Sarabjit Jagirdar at htsyndication@hindustantimes.com

(See original post)

By Bennett Roth , Roll Call
Wednesday, May 26, 2010 8:05 am

For months, the Information Technology Industry Council, a trade group that represents high-tech companies, has lobbied lawmakers to approve the extension of expired tax credits for areas such as research and development.

But now that Congress is moving to consider an economic package with those tax extenders, many business groups, including the technology council, aren’t rejoicing.

The reason is that the Democratic leadership, under pressure to offset costs, has tacked on revenue-raising tax changes that business leaders complain could cut their bottom lines.

“Some of the easiest pay-fors have been used up,” said Ralph Hellmann, senior vice president of government relations for the technology council. “Now you are hitting the bone. You are making changes that hurt companies’ competitiveness.”

This week, Hellmann’s group joined other prominent business organizations, including the National Foreign Trade Council and the Business Roundtable, in sending a letter to lawmakers opposing a crackdown on the use of foreign tax credits.

Their action was part of a round of furious lobbying on Capitol Hill this week over the jobs legislation that Congressional leaders say they want to complete before they leave for their Memorial Day break.

The bill, which was unveiled last week by House Ways and Means Chairman Sander Levin (D-Mich.) and Senate Finance Chairman Max Baucus (D-Mont.), is a mishmash of tax and spending measures. It includes extending unemployment benefits and health insurance subsidies, prevents Medicare reimbursement cuts for physicians and provides funding for a range of programs, including infrastructure bonds and summer jobs for young people.

The legislation also would raise the excise tax on oil production from 8 cents a barrel to 32 cents to fund the oil spill liability trust fund, which is expected to be depleted because of the massive BP oil spill in the Gulf of Mexico. Oil industry leaders said they were analyzing the increase, which they anticipated because of the spill.

House Democratic leaders spent Tuesday trying to corral their Members into supporting the $200 billion measure, which has drawn resistance from some fiscally conservative lawmakers in the Caucus. It is also unclear whether the Senate can muster the 60 votes necessary to approve the bill.

Meanwhile, outside groups have been trying to influence the final outcome, with much of the focus on the Senate, which is more likely to consider amendments to the legislation.

Among business groups, the U.S. Chamber of Commerce has taken the toughest stance against the measure, threatening to include votes on the bill in its evaluation of lawmakers’ records.

In a letter to House Members, chamber Vice President Bruce Josten said his group supported a number of elements in the bill, including extending the expired tax breaks, the Build America Bonds and pension relief.

But he said the benefits were outweighed by onerous tax provisions, including limiting corporations’ ability to use foreign tax credits and requiring that “carried interest” earned by venture capitalists and other investors be taxed at a higher rate.

“Many of these provisions would make significant changes to long-standing aspects of U.S. tax law and policy and have never been considered in hearings or other bills,” Josten said. He wrapped up the letter with a warning that the chamber may consider votes on the legislation in the chamber’s annual “How They Voted” scorecard.

The carried interest tax measure, in particular, has drawn fire from private equity firms and real estate investors who are alarmed that it would mean higher taxes for investment fund managers.

Currently, certain fund managers’ compensation is taxed as capital gains, which is a lower rate than if it were taxed as income. Under the bill, three-quarters of those earnings would be taxed at the higher rate.

The Private Equity Council, whose members include Bain Capital Partners, the Blackstone Group and the Carlyle Group, said the provision would change 50 years of partnership tax laws.

“This punitive 157 percent tax hike on growth investment by real estate venture, private equity and other firms will hurt those companies that are most desperately in need of capital to sustain or create jobs and drive growth,” Douglas Lowenstein, president of the Private Equity Council, said in a statement.

An official with the trade group would not discuss its lobbying strategy. But the organization has high-powered help in Washington. The council spent $4.2 million in lobbying from January 2009 through the first quarter of this year, according to lobbying disclosure filings with Congress. To assist in buttonholing lawmakers, the group hired four outside firms, Capitol Tax Partners and the law firms of Akin Gump Strauss Hauer & Feld, Brownstein Hyatt Farber Schreck and Sullivan & Cromwell.

Real estate groups, which have also funded multimillion-dollar lobbying efforts, sent a letter to lawmakers last week opposing the “carried interest” changes, arguing they would hurt the commercial real estate investment.

Public interest groups and unions, however, have applauded what they see as an effort to close tax loopholes they argue unfairly benefit hedge fund managers and companies that distort their foreign income to reduce the U.S. taxes they pay.

Citizens for Tax Justice, a liberal advocacy group, is urging its members to call lawmakers and tell them to support the legislation. The group maintained that investment fund managers are currently getting preferential treatment because their compensation is being treated as capital gains.

“The result is that investment fund managers who sometimes earn hundreds of millions of dollars a year pay at lower rates than their secretaries,” stated a summary of the bill on the group’s website.

Organized labor, led by the AFL-CIO, is also galvanizing its members to support the legislation. AFL-CIO spokesman Josh Goldstein said lawmakers who vote against the measure risk having the unions work against them in upcoming elections. He said union members were also working Capitol Hill this week.

“We’re definitely in full force out there,” he said.

(See original post)

By Niel Ritchie, League Rural Voters

Minnesota's taxes on businesses are the 15th lowest in the nation. That is the finding in the annual study conducted by Ernst & Young and the Council on State Taxation (COST), a national association of corporate tax attorneys.

"The claims often made by Governor Tim Pawlenty that Minnesota has an uncompetitive tax structure for businesses are false, and this study proves it," said Wayne Cox, executive director of Minnesota Citizens for Tax Justice.

The study, Total State and Local Business Taxes 2009, also found:

• Minnesota's annual business taxes would have to be $940 million higher in order to reach the national average of the states.

• Minnesota's total state and local taxes on businesses in 2009 was 4.3% of the state's private sector Gross State Product. The national average for the states was 4.7 percent.

• Minnesota's state and local taxes on businesses grew at a much smaller rate over the past four years than the national average for the states.

In an earlier finding, COST said, because of deductions, Minnesota actually only collects 30 cents on the dollar of the 9.8 percent corporate income tax rate. COST said credits and exemptions under the Minnesota corporate net income tax totaled 70 percent.

COST also gave Minnesota the second highest score in the nation for fair, efficient tax administration.

"Pawlenty's claims have been false for quite some time," Cox said. "Last year, the study ranked Minnesota 13th lowest overall -yet time and time again in the past year, Gov. Pawlenty has claimed Minnesota is uncompetitive.

"Last year the market value of the top 100 Minnesota corporations grew by $138 billion, or 46 percent, yet Gov. Pawlenty proposed $800 million in business tax cuts for next biennium - when the state faces a projected deficit of $6 to $7 billion.

"The legislature took a much wiser course for jobs now and for the future. It rejected Pawlenty's request for massive tax cuts for successful businesses. Instead it approved construction estimated to produce over 20,000 jobs, and it targeted investment in innovative new companies."

About COST

COST, an association of 600 corporate tax attorneys, commissions Ernst & Young to conduct the study each year. It tallies all state and local taxes imposed on businesses, including corporate income taxes and the extent that the individual income tax falls on business owners. The study measures the taxes paid as a portion of private business activity in the state, and then ranks each state.

(See original post)

Posted: Wednesday, April 28, 2010 1:00 am | Updated: 9:51 am, Tue May 25, 2010.

By Tom Zirpoli

This may come as a big surprise to many Americans, but 95 percent of us paid fewer federal taxes in 2009, the first year of President Barack Obama's administration, compared with 2008, the last year of President George W. Bush's administration.

In fact, most people paid fewer taxes during the Bush administration than they did during President Bill Clinton's administration.

Federal tax rates have been decreasing, not increasing as many Americans incorrectly believe.

According to the Center for Budget and Policy Priorities, middle-income Americans with a family of four, on average, are now paying 4.6 percent of their income in federal income taxes. This is the second lowest rate in 50 years.

Why were taxes so low in 2009?

Bush cut taxes a couple of times during his administration. Obama's stimulus package added another $200 billion in cuts to middle and lower-income families. Obama's Recovery Act also provided tax breaks and credits for many home buyers and for home energy improvements. Add it all up and, according to the Citizens for Tax Justice, the federal tax bill decreased for 98 percent of Americans in 2009.

So when you hear Tea Party members crying about their taxes going up, remember the facts: Federal income taxes have been going down for most Americans. And when you hear them crying about Obama raising your taxes, listen to Chris Edwards, Director of Tax Policy Studies at the conservative Cato Institute: "The only tax I think that has been put in place so far is an increase in federal cigarette tax."

While most Americans celebrate decreasing federal taxes, there is a negative side to decreasing federal revenues. For one, our federal deficit is soaring. While revenue is decreasing, expenses are increasing. After all, those tax cuts and wars in Iraq and Afghanistan cost a lot of money!

In addition, there are fewer federal dollars available to assist state and local governments. As a result, states like Maryland and cities like Westminster must cut services and raise taxes to balance their budgets.

We all want lower taxes. But we also want the snow to be plowed off our streets in a timely manner and clean water flowing out of our faucets. We want a strong military to defend us and a reliable air traffic control system to protect us. We don't want poison in our food or terrorists on our next flight to New York. We want Social Security to be there for our parents, Medicare and Medicaid to support our sibling with developmental disabilities and health care for our children even when we are unemployed.

Tea Party members send their kids to public schools and organize their protests in public parks, all supported by a combination of federal, state and local government funding. Most Tea Party members will collect more Social Security and other federal benefits than they paid in to the system.

After the Bush tax cuts, which costs more than the wars in Iraq and Afghanistan, we all watched as our national deficit ballooned from about $5.5 trillion the day Bush took office to about $10 trillion the day he gave the keys to the White House to Obama.

It is a good thing to have local and national conversations about taxes and the services we expect from our local, state and national governments. But when we are discussing taxes, we need to get our facts straight: Federal taxes have gone down, not up.

And one way or another, now or later, here in Westminster or over there in Washington, this steady decrease has a cost.

Tom Zirpoli writes from Westminster. His column appears Wednesdays. E-mail him at tzirpoli@mcdaniel.edu

Tom Zirpoli: Federal taxes continue to decline

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Posted: Wednesday, April 28, 2010 1:00 am | Updated: 9:51 am, Tue May 25, 2010.

By Tom Zirpoli | 0 comments

Share  

This may come as a big surprise to many Americans, but 95 percent of us paid fewer federal taxes in 2009, the first year of President Barack Obama's administration, compared with 2008, the last year of President George W. Bush's administration.

In fact, most people paid fewer taxes during the Bush administration than they did during President Bill Clinton's administration.

Federal tax rates have been decreasing, not increasing as many Americans incorrectly believe.

According to the Center for Budget and Policy Priorities, middle-income Americans with a family of four, on average, are now paying 4.6 percent of their income in federal income taxes. This is the second lowest rate in 50 years.

Why were taxes so low in 2009?

Bush cut taxes a couple of times during his administration. Obama's stimulus package added another $200 billion in cuts to middle and lower-income families. Obama's Recovery Act also provided tax breaks and credits for many home buyers and for home energy improvements. Add it all up and, according to the Citizens for Tax Justice, the federal tax bill decreased for 98 percent of Americans in 2009.

So when you hear Tea Party members crying about their taxes going up, remember the facts: Federal income taxes have been going down for most Americans. And when you hear them crying about Obama raising your taxes, listen to Chris Edwards, Director of Tax Policy Studies at the conservative Cato Institute: "The only tax I think that has been put in place so far is an increase in federal cigarette tax."

While most Americans celebrate decreasing federal taxes, there is a negative side to decreasing federal revenues. For one, our federal deficit is soaring. While revenue is decreasing, expenses are increasing. After all, those tax cuts and wars in Iraq and Afghanistan cost a lot of money!

In addition, there are fewer federal dollars available to assist state and local governments. As a result, states like Maryland and cities like Westminster must cut services and raise taxes to balance their budgets.

We all want lower taxes. But we also want the snow to be plowed off our streets in a timely manner and clean water flowing out of our faucets. We want a strong military to defend us and a reliable air traffic control system to protect us. We don't want poison in our food or terrorists on our next flight to New York. We want Social Security to be there for our parents, Medicare and Medicaid to support our sibling with developmental disabilities and health care for our children even when we are unemployed.

Tea Party members send their kids to public schools and organize their protests in public parks, all supported by a combination of federal, state and local government funding. Most Tea Party members will collect more Social Security and other federal benefits than they paid in to the system.

After the Bush tax cuts, which costs more than the wars in Iraq and Afghanistan, we all watched as our national deficit ballooned from about $5.5 trillion the day Bush took office to about $10 trillion the day he gave the keys to the White House to Obama.

It is a good thing to have local and national conversations about taxes and the services we expect from our local, state and national governments. But when we are discussing taxes, we need to get our facts straight: Federal taxes have gone down, not up.

And one way or another, now or later, here in Westminster or over there in Washington, this steady decrease has a cost.

Tom Zirpoli writes from Westminster. His column appears Wednesdays. E-mail him at tzirpoli@mcdaniel.edu

(See Original Post)

May 23, 2010

Session left much unsettled

State budget only 'fixed' short term

By Mark Fischenich Free Press Staff Writer

The Minnesota Legislature often adjourns with more than a few loose ends left hanging from their freshly printed budget, especially in election years.

In 2010, there were plenty.

The biggest is a monstrous deficit looming for the two-year budget cycle beginning in 13 months, the budget that the next governor and Legislature will be wrestling with starting on Jan. 2.

There are also unresolved issues around whether Minnesota should leverage over $1.4 billion in federal funds by enrolling early in a Medical Assistance program, how to repay billions of dollars the state is essentially borrowing from local schools, and whether Gov. Tim Pawlenty will be doing any more unallotments of aid to cities and other funding.

Red ink on the horizon

The shortfall projected for the next biennium — starting July 1 of next year — is $5.8 billion, or $7 billion if the impact of inflation is included. It’s a daunting number in relation to the state’s two-year budget of a little more than $30 billion.

On top of that, Democratic lawmakers and Republican Gov. Tim Pawlenty — who’s not seeking re-election — used nearly $2 billion in delayed payments to schools to eliminate a $3 billion shortfall in the current budget cycle.

“When the new governor first enters the governor’s office, it will be like entering a hoarder’s home — crammed to the gills with unpaid bills, warning notices from bond rating agencies, and crumpled up Supreme Court rulings,” wrote Wayne Cox, executive director of Minnesota Citizens for Tax Justice. “The new governor’s first job won’t be measuring the drapes. It will be figuring out how to head off the sheriff’s sale.”

Conservatives placed the blame on Democrats, saying they insisted on making temporary spending cuts of about $1 billion rather permanent reductions which would have reduced the size of the $5.8 billion shortfall for the upcoming budget cycle.

“Their unwillingness to make long-term cuts is driven by their desire to raise taxes next year when I’m not here to stop them ...,” Pawlenty said in a statement after the session ended.

Federal funds fight

The final budget deal contained a provision allowing Pawlenty, or the next governor, to enroll early in a federal Medical Assistance program that would cost the state $188 million but bring in more than seven times that much in federal funds.

With Pawlenty all but certain to opt not to opt in, the provision still matters, according to Sen. Linda Berglin, a Minneapolis Democrat who’s the Legislature’s top voice on health and human services funding.

“Not only is it in state law, it’s paid for,” Berglin said.

That means the new governor could sign up for the plan on Jan. 2 and probably have the federal money — which would total $1.4 billion to cover the cost of health care for low-income adults — flowing to the state by sometime in February, she said.

Rep. Tom Emmer, a Delano Republican and his party’s endorsee to replace Pawlenty, said he will not allow Minnesota to take the money if he wins on Nov. 2. Emmer predicted the state’s economic recovery “will be stopped in its tracks if the next governor opts in to Obamacare.”

Democrats said they were baffled by attempts to tie the issue to the health care reform bill pushed by President Obama and passed by Congress this year. Sen. Kathy Sheran, DFL-Mankato, said not accepting the federal money would be a huge mistake.

“We give up claiming money we have already given the federal government that will now be given to other states who opt in to early enrollment,” Sheran wrote in an e-mail to constituents. “The Medicaid program is not a new program. The new development is that early enrollment has been offered to about 11 states who have demonstrated cost efficiency and reform in their health care delivery system.”

Schools, can you spare a dime?

Pawlenty, using gubernatorial unallotment powers in an unprecedented way a year ago, attempted to delay $1.7 billion in payments to Minnesota schools to address a budget shortfall. Earlier this month, the Minnesota Supreme Court ruled that Pawlenty abused his power and that unallotment can be used to address budget shortfalls only after a balanced budget is negotiated with the Legislature.

The negotiations happened this year, but lawmakers upped the ante on the school borrowing after Pawlenty rejected proposed tax increases. Schools are now facing nearly $2 billion in delayed payments.

“Our local schools are going to be in the position of borrowing money to see themselves through, and there is a cost to doing that,” said Rep. Terry Morrow, a former St. Peter School Board member.

Area school officials preferred that to outright cuts in state aid, according to Morrow and Rep. Kathy Brynaert, who served on the Mankato school board before being elected to the House. But they would prefer to be paid what they’re owed, something that won’t happen soon if there isn’t substantial growth in state tax revenue, Brynaert said.

“I do think we’ll do our best to target money, but I understand that it could be 12 or 13 years (to entirely repay the shift) and that’s a long time,” the Mankato Democrat said.

A parting unallotment?

While Pawlenty was out of the unallotment business for a couple of weeks after the Supreme Court ruling, the passage of the budget agreement restores that authority if a couple of conditions are met.

First, an unanticipated drop in state revenue would need to be officially identified by the state’s finance commissioner. Second, red ink would still need to exist after the state’s remaining reserves have been depleted.

That could still happen if the economic recovery stalls during Pawlenty’s final seven months in office, a concern for cities because Local Government Aid has been a favorite target for the governor’s previous unallotments.

North Mankato Mayor Gary Zellmer, a board member of the Coalition of Greater Minnesota Cities, is hopeful that some federal funding will help spare cities this year even if the state’s budget condition worsens.

A federal jobs bill which passed the U.S. House would provide $408 million to Minnesota if the Senate concurs. Most of that money would end up in the state’s reserve accounts and would have to be depleted before Pawlenty could unallot. State Senate Majority Leader Larry Pogemiller put the odds at 50-50 that the federal dollars would arrive, but Zellmer is hopeful.

“It seems like things are stable right now as far as funding,”  Zellmer said.

By “stable right now,” he meant “right now.” The situation in 2011 and beyond is anything but, even with the legislative session complete.

“It doesn’t solve anything,” Zellmer said.

(See Original Post)

Tough Times Just Got Tougher

Tue May 18, 2010

By Wayne Cox

Governor Tim Pawlenty and Republican leader Rep. Kurt Zellers gave one of their "black is white" press briefings after Pawlenty agreed to a budget deal Sunday night. They claimed the principle they followed in the budget deal was "do no harm."

That must mean no harm to Governor Pawlenty's hope of gaining the Republican  nomination for President.  Most Minnesotans, however, will find tough times just got tougher--for vulnerable people, for businesses, for hospitals, for cities, for school children, for jobs and for taxpayers.

By rejecting the Medicaid option, Governor Pawlenty blocked efforts to do right by the tens of thousands of Minnesotans he had placed in health care limbo. He rejected a plan that would have returned financial stability to health care and hospital services.  He rejected the 20,000 private sector jobs that the plan the DFL sought would have provided. He turned his back on $1.4 billion of desperately needed federal dollars.  He seems to think federal aid is tainted money. He's right. It's money that taint coming here.

The budget cuts will take thousands of paychecks off of Main Street.  Small businesses need many more customers to keep their head above water. Now they will have fewer. Minnesota has 10 jobseekers for every job opening. That ratio just got worse.  Cutting jobs is the last thing one should do in tough times, but that is what Pawlenty insisted on--again. Minnesota has fewer jobs today than when Pawlenty became governor. He has been the job-killingest governor in recent history.  

To Pawlenty, there is nothing about a bad economy that fewer police officers, teachers, and university professors can't cure. In the last two years, the University of Minnesota has had to cut 1,200 positions.  Pawlenty has instituted a state-sponsored brain drain.

Tim Pawlenty doesn't want to be Ronald Reagan. He wants to be Herbert Hoover.

The Pawlenty-imposed budget deal added another $200 million to the amount of state payments to schools that will be postponed. Yet Pawlenty would not agree with the DFL plan on providing a plan for repayment. That is a job Pawlenty said he will leave for the next governor--along with a massive projected deficit and countless IOUs.

When the new governor first enters the governor's office, it will be like entering a hoarder's home-crammed to the gills with unpaid bills, warning notices from bond rating agencies, and crumpled up Supreme Court rulings.  The new governor's first job won't be measuring the drapes. It will be figuring out how to head off a sheriff's sale.

Pawlenty said the deal means no new taxes.  No new taxes, that is, unless one owns a home or rents an apartment. Under Pawlenty, property taxes have gone up 68%. Rather than removing the income tax cuts at the top that after 10 years still have produced no jobs, he slashed the renters credit. The $350 million in cuts to local government aid means property tax increases--again.

Unemployment is highest in greater Minnesota. Yet Pawlenty rejected the advice of Republican mayors and local Chambers of Commerce around the state to keep the jobs they have and instead Pawlenty made the job-killling cuts to local aid. Thanks to the backing Pawlenty got from Minority Leader Kurt Zellers and House Republicans, the cuts stuck.

Zellers said his caucus's approach was "do no harm." Republicans certainly did no harm to those at the top. Everyone else pretty much got creamed.

Wayne Cox is executive director of Minnesota Citizens for Tax Justice.  

(See original post)

Tue, May 18 2010

By Kim Dixon - Analysis

WASHINGTON (Reuters) - Companies and investors can only guess whether dividend taxes for high-income Americans will skyrocket next year, a distinct possibility.

If the U.S. Congress fails to take action, taxes on dividends will more than double to about 40 percent next year for individuals earning more than $200,000 and couples with annual incomes of more than $250,000.

The Obama administration favors preventing the tax rate from skyrocketing, but the need for revenue may make that position irrelevant.

The key sticking point is that unlike most of the Bush-era tax cuts expiring at year-end, Congress must dig up tens of billions of dollars in new funds to prevent the dividend levy from spiking.

Last month the Senate passed its budget "resolution," which sets parameters on spending in different categories and special rules on votes required to pass certain items. For example, it was a budget resolution provision that allowed Senate Democrats to pass the healthcare overhaul with a simple majority vote in March.

House lawmakers have not yet decided whether to adopt their own resolution. In an election year, putting such numbers -- including the current budget deficit -- on paper could be dangerous.

"No budget means bad news on dividends," analyst Jim Lucier of Capital Alpha Partners in Washington said in a note this week. "No budget resolution means the 40 percent rate could be effectively baked in."

President Barack Obama, for his part, backs a less severe increase that would lift the rate to 20 percent from the current 15 percent for upper-income households.

Meanwhile, companies issuing dividends are watching.

Last week Ingersoll-Rand Chief Executive Officer Michael Lamach said he was inclined to boost the dividend, but was waiting for a signal from Washington.

If future dividends are taxed at a higher rate, he told the Reuters Manufacturing and Transportation Summit, the company may instead use its cash for a stock buyback or acquisition.

BLENDED RATE

The possible changes are part of the broader expiration of tax cuts enacted under former President George W. Bush earlier in the decade. Obama and most of his fellow Democrats want to extend the personal income tax cuts for all those making under $200,000, but let them expire for those making more, about 3 percent of the population.

One option under discussion is a higher "blended" rate, an increase for both capital gains and dividend taxes, to soften the impact on shareholder payouts, according to analysts.

Goldman Sachs estimates that lawmakers could boost both rates to 25 percent and stay within budget rules. Capital gains, like dividends, are currently taxed at a 15 percent rate.

"To keep the rates equal without affecting the budget balance, the most obvious option is to set both rates at some equilibrium level," Alec Phillips, the firm's Washington analyst, wrote recently.

With or without a budget resolution, lawmakers could find a way to keep the dividend tax rate lower if the political will exists, said Mark Bloomfield, president of the American Council for Capital Formation, a group backed by companies that oppose higher investment taxes.

Business groups have hired Jim McCrery, a former top Republican on the tax-writing Ways and Means Committee, to lobby on their behalf.

"We're putting the issue on the radar screen," McCrery said, adding that he believes Congress is still "quite a ways away" from making decisions about the Bush-era tax cuts.

Backers of keeping the rate lower argue a dividend tax increase could spur companies to take on more debt and hurt the economy.

The consumer group Citizens for Tax Justice backs taxing investment income on par with ordinary income. The highest marginal tax bracket is now 35 percent.

The group argues that the economy did just fine under former President Bill Clinton, when dividends were taxed at nearly 40 percent.

"I don't think anyone would say the economy was crashing then," said Steve Wamhoff, the group's legislative director.

American Council for Capital Formation President Bloomfield said he has been meeting with lawmakers to press his case for lower taxes, but has not seen congressional leaders make a serious push.

"Somebody in a position of power needs to decide," he said.

But for at least another month, investors will remain in suspense as lawmakers slog through financial reform and other matters.

(Reporting by Kim Dixon; Editing by Lisa Von Ahn)

(See original post)

By Jay Heflin - 05/17/10 04:26 PM ET

The left-leaning Citizens for Tax Justice issued a report stating that extending the top tax rate reductions enacted under President George W. Bush would do little to help job growth.

Democrats are expected to extend the Bush tax cuts for individuals earning less than $200,000 and joint filers earning less than $250,000 annually. That basically means that the top two rate cuts will return to their higher, pre-2001 levels in January.

Lawmakers on both sides of the aisle have claimed a tax increase on the upper brackets will hurt small business that are taxed as individuals and hinder their ability to hire additional workers.

The CTJ report, issued last Thursday, states that only 3 percent to 5 percent of small businesses earn enough of a profit to qualify for the top tax rates. It also claims that hiring decisions are normally based on demand and generating more of a profit, not on tax savings.

"Lawmakers who have supported the Bush tax cuts in their entirety are going to continue to support making all of these tax cuts, even for the very richest Americans, permanent," the report states. "They will use whatever argument they believe the public will be receptive to in the current economic and political environment."

Some lawmakers have also floated the idea of carving out small businesses from the coming rate hike on the upper brackets. But the CTJ argues a special tax break for companies will encourage wealthy taxpayers to disguise their income as coming from a business to qualify for the carve-out.

Absent congressional action on the upper brackets, the 33 and 35 percent rates will increase to 36 and 39.6 percent in January, respectively.