Senator Coleman Tax Relief Summits

Senator Norm Coleman will be hosting a day of Tax Relief Summits around the state on April 23. The events will be two-hour round table discussions covering the key corporate and individual tax issues facing the nation today. To register to attend the Chamber's roundtable discussion with Senator Coleman call the Chamber at 251-2940 ext. 126 by April 22. Read below to find out more about discussion topics.

Business Tax Issues

• Depreciation Allowances for Small Business: The JGTRRA sought to enhance the incentive for small business to invest by accelerating the tax treatment of depreciation for certain tangible business assets. The Act raises the amount that a firm may expense in a tax year from $25,000 to $100,000 and the threshold at which the allowance phases out from $200,000 to $400,000 between 2003 and 2005.  These changes will revert to their former levels if not made permanent. 

• Tax Loss Carryback: Businesses are generally subject to federal tax on their taxable income, that is, their gross revenues, as defined by the tax code, minus allowable deductions. If a firm’s CRS-7deductions in a given year exceed its taxable revenues, it incurs a loss for tax purposes, a “net operating loss” or NOL. Firms incurring an NOL in a particular year are permitted to “carry back” the NOL and deduct it from taxable income earned in the preceding two years. If a firm possesses positive taxable income in either of the two carryback years, it receives a tax refund for the deductions generated by the NOL. If some or all of the firm’s NOL remains after deducting it from taxable income in the carryback years — if the NOL is larger than the sum of taxable income in the carryback years — any remaining NOL can be “carried forward” up to 20 years and deducted from taxable income in the future.

• The Alternative Minimum Tax: The alternative minimum tax, or AMT, is a separate system of income taxation that operates in parallel to the regular income tax.  The corporate AMT is not as concerning as the individual AMT, however, it does raise some of the same issues.  Also, the individual AMT also has an effect on the business community as wealthy executives often relocate to states with friendly tax climates (i.e. a state like Minnesota can have a harder time attracting talent).

• The Estate Tax: Although mostly an issues for individual taxpayers, the estate tax can also have implications for nonprofit corporations.  Wealthy individuals will often make large charitable donations from their estates for the tax deductions.  Therefore, repealing the estate tax could mean a loss a revenue for nonprofits.

Individual Tax Issues

• The Child Tax Credit: The child tax credit was initially enacted as part of the Taxpayer Relief Act of 1997. In the general explanation of the Act, Congress indicated that the tax structure at that time did not adequately reflect a family's reduced ability-to-pay as family size increased. The decline in the real value of the personal exemption over time was cited as evidence of the tax system's failure to reflect a family's ability-to-pay. Congress further believed that the child tax credit would reduce a family's tax liability, would better recognize the financial responsibilities of child rearing, and promote family values.  The Jobs Growth and Tax Relief Reconciliation Act of 2003 (JGTRRA) increased the child tax credit to $1,000 for 2003 and 2004.  Without any further change, the child tax credit will fall to $700.

• The Marriage Tax Penalty: The U.S. tax system imposes taxes on a family basis, and thus combines the income of married couples, who file joint returns. The tax system is also progressive, allowing standard deductions and personal exemptions, and providing higher tax rates as income rises. Therefore, the system is not marriage neutral and sometimes forces couples to pay more as joint-filers than they would have as separate individuals.  Concern over this issue reflects an obvious reservation about discouraging a social institution such as marriage, and the possible incentives that the law creates for couples to live together without marriage.

• The Estate Tax: The estate tax and generation-skipping transfer (GST) taxes are scheduled to be repealed effective January 1, 2010, the EGTRRA. However, they are scheduled to sunset as of December 31, 2010. If the sunset provision is not repealed, in 2011 tax law would return to the law in place prior to the enactment of EGTRRA.  Critics of the estate tax argue that it reduces savings and makes it more difficult to pass on family businesses and farms to the next generation. Critics also argue that death is not an appropriate time to impose a tax; that much wealth has already been taxed through income taxes, and that complexity of the tax not only imposes administration and compliance burdens but undermines the progressivity of the tax.  This said, some nonprofit groups support the estate tax as estate planning often equates to tax deductible charitable contributions.

• The 10% Income Tax Bracket: The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) reduces marginal income tax rates for individuals. The Act creates a new 10% marginal income tax bracket and reduces the four top marginal tax rates to 25%, 28%, 33% and 35%.  For 2003 and 2004 the 10% tax rate is applicable to the first $14,000 of taxable income on joint returns and the first $7,000 of taxable income of single returns.  Failure to extend this provision will result in only the first $12,000 of taxable income on joint returns and the first $6,000 of taxable income on single returns to be taxed at 10%.

• The Alternative Minimum Tax: The alternative minimum tax, or AMT, is a separate system of income taxation that operates in parallel to the regular income tax.  It was first enacted in 1969 to capture 155 extremely wealthy individuals who had escaped paying income taxes altogether through shelters.  In 2003, however, the AMT affected more than 3 million taxpayers, most of them middle-class and upper-middle-class families with kids.  Because the AMT provides fewer deductions than the regular income tax, and the deductions are not indexed to inflation, more and more taxpayers are forced into the AMT.  If a taxpayer’s statement contains one of the AMT “landmines” – high state and local taxes, hefty job related expenses, or incentive stock options – he/she could be faced with a very large AMT penalty.  JGTRRA increased the basic AMT exemption amount from $58,000 for joint returns and to $40,250 for unmarried taxpayers for 2003 and 2004.  If Congress fails to act, the exemption amount for AMT purposes will fall to its 2000 level of $45,000 for joint returns and $33,750 for single returns.  This will expose more taxpayers to the AMT.