Washington State’s Debt Rating Outlook: “negative”

Washington State's debt rating outlook has been downgraded to "negative" by both Moody's and Fitch rating agencies. From the Seattle Times article:

Moody's Investors Service said in its rationale released Monday that the state faces challenges in fixing structural budget problems, noting that Washington faces a revenue shortfall at a time when other states are reporting no budget problems or only minor gaps.

"The outlook revision to negative from stable reflects the magnitude of the revenue falloff that continues to challenge the state as it struggles to recover from the recession," Moody's statement said.

… Moody's noted that the state's reliance on a sales tax has made it challenging during a recession that has impacted consumer confidence. The agency cited other challenges, including reliance on the cyclical aerospace industry, above-average debt ratios and frequent voter initiatives that add to budget challenges.

Washington lawmakers are working to close a roughly $1 billion budget deficit and want to leave several hundred million dollars as a buffer.

Clergy: You can’t deduct your lake house…

The 11^th Circuit Court of Appeals has ruled that the parsonage allowance income exclusion (IRC § 107(2)) only applies to one house. The taxpayers, Philip & Lynne Driscoll had claimed both their principal residence and their lake house. The Tax Court allowed the exclusion, the 11^th Circuit reversed.

Moral of the story: your parsonage allowance doesn't apply to your vacation home…

Effective Income Tax Rates: Now isn’t this interesting.

Scott A. Hodge, at the Tax Foundation, has compiled a very interesting table which was sourced out of IRS tax statistics for 2009.

Hodge states "[f]or the entire universe of American taxpayers, the average tax rate is 11 percent of our AGI. The highest average tax rate paid by anyone earning under $100,000 is 8 percent. That shows the power of the sundry tax credits available to the 'middle-class'."

In President Obama's January 24, 2011 State of the Union address, he proposed a new 30% Alternative Minimum Tax (AMT) on households with income of more than $1M per year. Evidently this can be accomplished by limiting deductions to those taxpayers. More here.

It appears that returns with less than $100,000.00 of income constitute 87.5% of all returns. That means that 87.5% of Americans pay an average effective rate of 8% or less.

President Obama has now proposed an effective minimum rate of 30% for all incomes over $1M.

Table from Tax Foundation

Income Tax Summary Statistics for 2009
	All Returns	AGI ($Billions)		Taxable Returns		Income Tax After Credits ($Billions)		Average Tax Rate	Share of total taxes	Share of all AGI
All returns, total	140,494,127	$7,626		81,890,189		$865.9		11%	100%	100%
No adjusted gross income	2,511,925	($199)		3,820		$0.1		0.0%	0%	-3%
$1 under $5,000	10,447,635	$27		306,587		$0.0		0.1%	0%	0%
$5,000 under $10,000	12,220,335	$92		1,899,331		$0.4		0.4%	0%	1%
$10,000 under $15,000	12,444,512	$155		2,883,906		$0.8		1%	0%	2%
$15,000 under $20,000	11,400,228	$199		4,868,050		$2.5		1%	0%	3%
$20,000 under $25,000	10,033,887	$225		4,639,085		$4.7		2%	1%	3%
$25,000 under $30,000	8,662,392	$238		4,603,763		$6.8		3%	1%	3%
$30,000 under $40,000	14,371,647	$500		9,589,845		$20.2		4%	2%	7%
$40,000 under $50,000	10,796,412	$483		8,381,017		$25.4		5%	3%	6%
$50,000 under $75,000	18,694,893	$1,149		16,449,393		$78.0		7%	9%	15%
$75,000 under $100,000	11,463,725	$990		10,987,101		$80.5		8%	9%	13%
$100,000 under $200,000	13,522,048	$1,801		13,374,553		$212.3		12%	25%	24%
$200,000 under $500,000	3,195,039	$905		3,178,420		$176.3		19%	20%	12%
$500,000 under $1,000,000	492,567	$332		489,904		$80.5		24%	9%	4%
$1,000,000 under $1,500,000	108,096	$130		107,416		$32.8		25%	4%	2%
$1,500,000 under $2,000,000	44,273	$76		44,015		$19.4		25%	2%	1%
$2,000,000 under $5,000,000	61,918	$183		61,535		$46.9		26%	5%	2%
$5,000,000 under $10,000,000	14,322	$97		14,236		$24.6		25%	3%	1%
$10,000,000 or more	8,274	$240		8,211		$53.8		22%	6%	3%
Summary for $1 Million+	236,883	$726.9		235,413		$177.5		25%	20%	10%
Source: IRS 2009 Data, Table 1.2 http://www.irs.gov/pub/irs-soi/09in12ms.xls

Capital Gains Tax Rates in 2013: going up!

According to the Tax Policy Center, Americans can expect the Capital Gains Rate to rise at year end as the Center's chart below shows.

The second column (rates rise from 15% to 18.8%) adds an additional 3.8% that was included in the Obamacare legislation and assumes that the 2001 & 2003 rate cuts are extended. The third column (rates rise from 15% to 25%) assumes the 2001 & 2003 rate cuts are not extended and therefore that the "Pease" limitation on itemized deductions returns.

More detail and in-depth discussion can be found at the Donald Marron's Tax Policy Center Blog Post, here.

2012 Presidential Hopeful Tax Plan: Romney

The Tax Policy Center has produced the following description of Mitt Romney's tax plan. The full text and additional analysis can be found here:

Governor Romney would permanently extend all the 2001 and 2003 tax cuts now scheduled to expire in 2013 and continue to "patch" the alternative minimum tax, but would allow some recently enacted provisions to expire and would repeal certain tax provisions in the 2010 health reform legislation. Tax provisions in the 2009 stimulus act and subsequently extended through 2012 would expire. These include the American Opportunity tax credit for higher education, the expanded refundability of the child credit, and the expansion of the earned income tax credit (EITC). The plan would also eliminate tax on long-term capital gains, dividends, and interest income for married couples filing jointly with income under $200,000 ($100,000 for single filers and $150,000 for heads of household) and repeal the federal estate tax, while continuing the gift tax with a maximum tax rate of 35 percent.²

At the corporate level, the Romney plan would make two major changes: 1) reduce the corporate income tax rate from 35 to 25 percent and 2) make the research and experimentation credit permanent and extend for one year the full expensing of capital expenditures. It would also allow a "tax holiday" for the repatriation of corporate profits held overseas but does not specify whether repatriated earnings would face any tax (and, if so, at what rate). In the longer run, Gov. Romney would reduce the corporate rate further in conjunction with base broadening and simplification and would move the corporate tax to a territorial system.

Gov. Romney would also permanently repeal the 0.9 percent tax on wages and the 3.8 percent tax on investment income of high-income individual taxpayers that were imposed by the 2010 health reform legislation and are scheduled to take effect in 2013.

The Tax Policy Center compiled this information from Believe in America: Mitt Romney's Plan for Jobs and Economic Growth and through correspondence with the Romney campaign.

Update on Friday, February 24, 2012 at 3:30PM by Jess Monnette

Mitt Romney has recently updated his tax plan. 

He proposes a 20% cut in personal marginal rates. 

According to the Tax Foundation, the new rates for a single filer would be as follows. 

Mitt Romney Marginal Rates for Single Filer
Current Rates	Romney Rates		Brackets
10.0%	8.0%	>	$0
15.0%	12.0%	>	$8,700
25.0%	20.0%	>	$38,350
28.0%	22.4%	>	$85,650
33.0%	26.4%	>	$178,650
35.0%	28.0%	>	$388,350