The Election Results Are In: Tax Uncertainty Remains
The 2012 election results are largely in – President Obama has won a second term, and a majority of the seats in the House of Representatives and Senate will be retained by the Republican and Democratic parties, respectively. What is still largely unknown is what these election results will mean for federal income, wealth transfer and other taxes going forward.
Absent a compromise, it is certain that tax rates are scheduled to rise across the board on January 1, 2013. The current federal income tax rates for individuals will revert to the rates in place prior to 2001, essentially amounting to a 3% to 5% across the board tax increase. In addition, the 2012 payroll tax holiday consisting of a 2% decrease in the employee portion of social security taxes will end. Finally, investors will also be faced with the new 3.8% Medicare tax on net investment income above certain thresholds that was enacted as part of the health care reform legislation. Likewise the federal estate, gift and generation skipping transfer taxes will revert to the law in effect prior to 2001 and result in a significant increase in those top tax rates combined with a significant decrease in the exemption amounts common to all three of those wealth transfer taxes. A reversion to pre-2001 tax laws coupled with these other new taxes appears to be the worst case scenario in the event that Washington is unable to avoid driving off the so-called “fiscal cliff.”
Fortunately, both political parties have made it clear that their tax policies are not nearly so drastic. It is still too early to tell, however, what areas of compromise might be found and in which direction specific taxes, brackets and rates will move. We encourage each of you to consult with your legal, financial and other tax advisors to ascertain whether any year-end planning is appropriate for your personal situation – particularly with respect to estate and gift tax planning techniques that may be lost for good after December 31st, including the current $5,120,000 estate, gift and GST tax exemptions.
The Tax and Estates Practice Group at White and Williams is committed to keeping our clients and friends up to date with important tax developments. As further information becomes available regarding the direction in which tax policy is likely to move in these highly uncertain times, we will endeavor to advise you of significant developments. For current information, please also refer to the Tax and Estates page on our website, www.whiteandwilliams.com.
If you would like to discuss how any of these changes may affect your business or personal tax planning, or have any other tax or estate planning questions, please contact Bill Hussey (215-864-6257 / HusseyW@whiteandwilliams.com), Kevin Koscil (215-864-6827 / Koscilk@whiteandwilliams.com) or Suzanne Prybella (215-864-7188 / Prybellas@whiteandwilliams.com).