Earlier this week President Obama unveiled his proposed 2013 federal budget. The mammoth document details how much money he proposes the government take in from taxes, possible changes to the tax code, and information on how that money should be spent. Considering the proposal includes various changes to what is taxed and at what rate, estate planning attorneys always pay attention to the details of the proposal. The budget applies to the federal fiscal year 2013, which actually begins on October 1, 2013.
However, each New York estate planning lawyer at our firm appreciates that this bill is simply a blueprint–a starting off point to begin discussions about the budget, not a detailed map of what will likely occur. That is especially true this year, because election years are always known for their lack of compromise and avoiding of controversial tasks. It is important to read this proposal from that perspective. That doesn’t mean that the budget proposal has no value when it comes to estate planning. The ideas set forth in the proposal are indicative of at least some ideas that will likely be brought forward for consideration that may become law. For one thing, contrary to the claims made by many reformers on both sides of the political aisle, the budget does little to simplify the tax code. Instead it suggests a range of increased layers of tax complexity.
The budget would change basic income tax rates, particularly for those in higher income brackets. For example, the budget calls for an increased minimum income tax rate of 30% for those making over a million dollars. In addition, the proposal assumes that the current income tax breaks for those making over $250,000, which were first passed by President Bush, will be allowed to sunset. Without Congressional action, these income tax rates will return to higher levels at the end of this year. In addition, the estate tax would rise in the current proposal to 45% from 35%, with the exemption rate dropping to roughly $1 million from $5 million.
Business taxes would also see some changes in this proposal. Bloomberg News explained that while the President has talked of simplifying the corporate tax code, the proposal does not suggest any ways to do that. Instead of lowering the 35% tax rate, the budget would simply add more credits and deductions. The incentives would be geared toward manufacturing and “high-tech” manufacturing companies, while domestic oil and gas production interests would lose billions of dollars in current tax “preferences.”
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