Barack Obama’s address to Congress 02/24/09

Barack Obama’s address to Congress

While President Barack Obama was addressing Congress he was talking to three sets of different chambers of Congress. Not the House and the Senate but rather the Republicans and the Democrats and the American people.

If the wording of what he said does eventually come true, and I believe parts of it will come true, then the other parts will have profound implications for generations to come. However, if other parts do not come through and the continuation of political differences continue, then our economy will eventually stagnate back to its normal course and take its place in a continuing history of events.

President Nixon proposed an Earned Income Tax Credit in one of his State of the Union addresses. The proposed items had been adopted by Congress and signed into law. However, does anyone realize this was presented by President Nixon in an effort to diminish the disparity between the haves and the have not. Or really should I say to diminish the distance between the racial divide which plagued the nation at that time and going back to the Civil War and to the Declaration of Independence. Social issues still seem to be an overriding attribute of equalization which past presidents have tried to address. Some take a radical approach and some have taken a progressive approach.

Energy is one of the items on Obama’s list of needs. This list was first placed on our national agenda in the 1970’s with the oil embargo and President Nixon’s administration. Congress could not find an equilibrium and still has not been able to find an equilibrium which would bring our country out of economic disadvantage from the rest of the oil producing countries. President Obama puts this in another fashion: “

“In other words, we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day.”

The finding of new sources of energy should be of a paramount goal for other goals may lead to other less savory short-term goals which only can bring on lesser achievements and lower profits in the long-run. Short-term profits always will remain short-term profits unless the long-term profits are first met.

The Pilgrims suffered for the long-term profit of establishing a settlement where they could worship God as they wanted to. The short-term profit of going south for warmth was not achieved and numerous settler passed away. But yet today their long-term goals are still being strived for as our country continues to worship God in an independent and respectful fashion. The reasoning behind “In God We Trust” becomes stronger as each generation passes the torch. A strong energy independent economy will help in the worshipping of God. Sources of oil in the Gulf and in the upper northern states need to be explored and come to fruitfulness for our continuing independence and for the joy of worshipping God.

God is still in control. From the time China unites with the United States over a common enemy to the United States once again becoming the salt of the earth our energy independence and non-reliance upon other countries would help in transforming the world once again to a vision which would be a full respecter of God and His wishes.

I read in the paper today that North Korea will be testing a rocket which could reach the United States. I believe this will be a uniting factor between the United States and China. The enemy of my enemy is my friend. The small sayings can become true statements in the joining of forces.

“Now is the time to act boldly and wisely…”

When acting boldly and wisely the writers and signers of the Declaration knew that boldness and only boldness would unite the country. A single man helped in that endeavor, Thomas Payne, by writing a pamphlet called “Common Sense”. Is our country past common sense. I dare to say ‘No’. Do we need to act boldly now, ‘Yes’. But reacting wisely is also of importance. Thomas Jefferson was bold in his writing of the original draft of the Declaration of Independence. Others thought it not wise to include the freeing of slaves. The wisdom was thought we would not have a United States but a North and a South. The slave issue finally was arrested in the fighting of the Civil War. In times of unrest our Country has surrounded the independent spirit and the respect of everyone to worship God in their own way. A few people demanding that we respect the earth while not allowing others to respect the earth by drilling to uncovers its riches is a hindrance to our independence and of our founding father’s desire to worship God in their own fashion.

“As soon as I took office, I asked this Congress to send me a recovery plan by President’s Day that would put people back to work and put money in their pockets. Not because I believe in bigger government–I don’t.”

This is a revelation to both sides of the aisle. A democrat not wanting bigger government is like saying one is a Republican. Maybe the Republicans should listen and if this comes true they should adopt President Obama as a Republican. Not just yet though.

“Over the next two years, this plan will save or create 3.5 million jobs.

More than 90% of these jobs will be in the private sector — jobs rebuilding our roads and bridges; constructing wind turbines and solar panels; laying broadband and expanding mass transit.”

Mr. President, these may be from the private sector as in construction jobs but the money and the reasoning would be for the benefit of the government bureaucracy. Roads and bridges and mass transit are objectives of government. Turbines and solar panels would be the exception only to this. But some of this may become sources of ownership by big government. Please excuse my skepticism but this still sounds like big government. If the government would get out of the way then private citizens could build their own solar panels on their property and take the funds out of their IRA or ROTH/IRA and without a penalty or taxing the retirement fund then true individuals could build their own wealth by eliminating the need for government intervention. Government has a few roles but the creation of jobs can never be the result of government except when they get out of the way so the citizens can create.

“Because of this plan, there are teachers who can now keep their jobs and educate our kids.”

Building roads and bridges, constructing wind turbines and solar panels; laying broadband and expanding mass transit does not create jobs for teachers and educate our kids. Sorry but the logic does not flow.

“Because of this plan, 95% of the working households in America will receive a tax cut…” It would seem to me if our real estate taxes were cut to the level in which the value of the house is then a bigger tax cut would be coming to 100% of the working households in America. The smaller the government the bigger the tax cut.

Education has always been of concern to Thomas Jefferson. He even had one slave cook for him in a French Cooking style for five years and then let the slave go. I never have heard if the former slave opened up a restaurant in Washington, D.C. or not. Sometimes holding onto an asset is for the betterment of one. Letting it go could be for the benefit of many. Ditto with Oil. Ditto with letting the citizens develop their own source of energy independence. The collection of the many can be for the benefit of the whole and stronger than the whole also.

Government by mandate is not the solution to our economy woes but in reality the letting go of government will be the releasing of our independence. Government pressure and trying to be helpful is what got us into this mess in the first place. But placing this issue as a national project is what might save us. Stop right there. If government got us into this mess then government should get out of the way so the independent thinking can voice victory and victory should not be that of the government.

“I have appointed a proven and aggressive Inspector General to ferret out any and all cases of waste and fraud.” This is merely an endeavor to express your concern of resolving big government while really not proving your case. Only if waste and fraud are truly eliminated will anyone be able to respect this statement. Past Presidents have stood fast to this principle but only one has achieved this as a goal. Instead of cleaning up the government I say that not the yearly debt to be reduced in half by four years but rather the debt of the United States needs to be nullified in four years period of time. Being independent and the size of government being small can accomplish this feat. With $700 billion in oil imports costing us each year the multiplier of current money flow being 12X if independence of energy can be achieved then the complete budget deficit can be erased.

“…we clean up the credit crisis…”

If I see legislation which restricts the usage of credit card debt which must be paid within three months then I will believe this is a solution to the credit crisis. Forgiveness of all credit card debt longer than six months would greatly increase the capacity of independence and reduce high interest rates. The credit card industry has severely weakened our financial system and needs a reminder of constraint. Reducing the need for and access to credit card indebtedness is the only way to”…swiftly and aggressively to break this destructive cycle, restore confidence, and restart lending.”

If you are really trying to “reform our out-dated regulatory system” then you will indeed need to adopt a tough credit card policy which would bring a “…tough, new common-sense rules of the road so that our financial market rewards drive and innovation, and punishes shortcuts and abuse.”

“The only way this century will be another American century is if we confront at least the price of our dependence on oil and the high cost of health care: the schools that aren’t preparing our children and the mountain of debt they stand to inherit. That is our responsibility.” …. “I see it as a vision for America – as a blueprint for our future.”

“I reject the view that says our problems will simply take care of themselves; that says government has no role in laying the foundation for our common prosperity.”

But I would rather say that the problem is with government and the solution is really instructing the spirit of independence to squash the lack of enthusiasm and embrace the need for independence.

Again, government has laid the foundation for independence through the forming of IRA and ROTH/IRAs. Now is the time for government to allow the independent spirit of being able to use these funds for solar cells and wind power generation in ones own home. No tax penalty and no income tax upon withdrawal. Take the roadblocks to financial success out of the independent thinkers. The collection of IRAs and ROTH/IRAs is greater than the communistic collective governments of China’s government.

A recent wave power project for the Neah Bay Tribe in the Northwest corner of the State of Washington by a Canadian firm in Vancouver, B.C. was recently discontinued and another project picked up for construction in Ireland instead was started. Was this because big government was the solution or because the company did not know if they would be paid. Washington State is in financially dyre straight and the company also discontinued a like project in California in favor of Ireland. Noting that a 10 miles by 10 mile area in the ocean can produce a great amount of electric energy for the state. Also, on the Washington coast south of Neah Bay is where no human lives for 23 miles. Neah Bay project was projected to create electricity for 150 homes. A rather small project but a start for the state.

All sources of energy need to be explored. Did the Spanish explorers stop at the east coast.

Putting a “market-based cap on carbon pollution” will only drive our existing infrastructure into a tailspin. This is like saying to depression era unemployed citizens that they need to pay a higher tax so the workers can get jobs.

There are three things which economists say create economies.

1) Land

2) Labor

3) Capital

But I say there is a different method to economies. There are three things which can create a new economy.

1) Farming

2) Extracting Minerals

and the last one is

3) Innovation.

In no way is government in this mix. If government wants to be the one contributing capital then the solution is still there. But the locomotive was an innovation. The other five items were needed. Our country expanded. When the innovation of the auto assembly line was constructed by Henry Ford the others were used and increased. With President Eisenhower’s use of innovation and the highway system the other forces came in usage and created wealth. A more efficient farming system was one of the major benefactors.

But if the extracting of oil is not continued but rather punished then the objective of developing “our recovery plan, we will double this nation’s supply of renewable energy in the next three years” then in fact this could stall this three year plan as well. To decrease an existing innovation with a tax is essentially saying to the economy to slow-down.

Eisenhower did not eliminate all new or existing roads.

The train system did not replace the road.

The assembly line did not mandate all older systems to terminate.

If something is better than a prior technology then the prior technology will soon have a modified usage. Taxing it was not done in the past nor was it necessary or useful. The free market took over. Taxing a drill, baby, drill philosophy will not create the oppressors objectives of immediately depressing the older technology but will suppress the economy so the funds for the new segment will take longer and thus require the continuation of the older system.

If you are trying to not believe in “Big Government” but you “make clean, renewable energy the profitable kind of energy” then you are in-fact creating “Big-Government”. Big Government is the problem and not the solution.

Asking “Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America.” If Congress tries to create a market-based cap then this is not a market-based cap. It is a government-based cap. The devil is in the interpretation. Market vs. Government. If government invests “fifteen billion dollars a year to develop technologies like wind power and solar power, advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America” then the government does not need to create a market-based cap. The innovation will create this and the market would be the solution. The auto industry will then by itself be required to be self “retooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it.”

“…We must also address the crushing cost of health care.”

 

I am not seeing any new solutions for or from government here. Neither do I expect a real solution from government here. I think that only a natural solution is possible. The adherence to God’s principles can truly increase the need and longevity of life. The suppression via drugs which mask symptoms is at best artificial. Creative yes, but artificial.

“Promise of education in America.”

“Right now, three-quarters of the fastest-growing occupations require more than a high school diploma.” The definition of Labor from above needs to include education. If an adequate labor force is not available then the efficient usage of capital will not be needed. A competitive cradle to college objective has already been the prior government objective and a new system of education needs to be explored. Trying and throwing funds at the old style or old system will not improve the system. But if the system has been tried then by all means “expand our commitment to charter schools”.

I think about the innovation of the pencil when it comes to schools. The lead attachment was used and then a separate eraser was picked up and used if needed. Well, our education system does to have an eraser attached to it so the immediate extra steps of picking up the eraser do need to be exercised.

The education system needs to adopt the non-public system as an attachment to the public school system. With innovation some students parents could actually pay for the cost of the salary of a teacher. But in the non-public school system they can charge a higher price and get highly skilled professional teachers. To see a teacher without a doctoral degree in some private schools is rare. Only the exceptional masters degree teachers could apply. The eraser part of this would be the invitation of one or two students from the main school populace to be invited for one semester into the class of 8 or 10 students for a recognition of other accomplishments and achievements which the parents have voted in. This would instill a higher achievement level in the other students to achieve so they possibly could be selected as fellow high achiever students. Those parents willing to expend extra funds for the professor teacher would be rewarded with a higher capacity of learning available in a public school setting and the school system would get a better general student. The higher cost of private education would be mitigated modestly.

“And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.” I thought this was tried in the Bush administration era. An immediate introduction of this and not even out of the batters box or the racing gate.

The military is still the backbone of all types and styles of economies. The foundation blocks of Land, Labor and Capital and the building blocks of Farming, Extracting Minerals and Innovation could not exist without any pre-existing strength from a well-qualified military force. The defending of the strength of these foundation blocks begins with the steady hand of the military.

A child who can utter the words of “we are not quitters” with conviction and steadfastness is showing off her strength as a David, as a Ruth as a Daniel or as a Mary. Her conviction should motivate the rest of us.

END

Attorney General Eric Holder, February 18, 2009

Not only is the democratic Attorney General of the United States of America spewing this language of weakness but the local Washington State party has a bill which would create “ethnic community centers”.  I thought we were Americans and not pockets of nationalities.  Pride from the former homeland is O.K. but joining together for the pride of all Americans is of a higher goal.  See Washington State HB 1666 Creation of Cultural Access Authorities   Besides that no one has the money to spend freely.  Seattle City Light is right to have a mosaic on the outside of their building expressing the need to be able to have necessary utilities and to be able to use them “freely”.  (At a reasonable cost.)  But to strangle inclusion by building ethnic centers will perpetuate the Attorney Generals misconceptions.

I thought the objective of the bully pulpit was to stimulate the economy.  This type of economic stimulation will create a fourth wave of economic stagnation since President Roosevelt created three waves of recession by his thinking of government as the cure. 

Thinking positive and unifying through your words and deeds has created upward and long lasting economic successes.  Note President Reagan.  Reagans plus versus Roosevelts negative.  Which will our leaders choose.  

Please advise.

 “Though this nation has proudly thought of itself as an ethnic melting pot, in things racial, we have always been, and we, I believe, continue to be, in too many ways, a nation of cowards….  To our detriment, this is typical of the way in which this nation deals with issues of race.” – Attorney General Eric Holder, February 18, 2009

Recovery and Reinvestment Act of 2009

As you all might know by now the Act is stuffed with little goodies.  Some good and some bad.  Particular target industries such as the real estate market are included.  Education HOPE Credit is changed to the American Opportunity Credit and increased to $2500 and available for a four year period after high school.

First-time homebuyers (those who have not had a home in the last three years can now get a $8,000 credit if a house is purchased after 01/01/09 otherwise the old rules stay.  Income limitations do apply the same as with the old law. 

The big one is the Business capital gains relief.  A small business owner can exclude up to 75% of the capital gains on the sale of equipment if he/she has owned the business for the last five years.  My suggestion is get rid of the old equipment and buy some new equipment which would be more efficient.   Some businesses may not have to pay capital gains anyways in they are in the 15% tax bracket for personal income anyways.  Warning:  Will still have to claim as ordinary income the recapture of depreciation.  Recapture is not a capital gain amount but still carries on Form 4797 as an ordinary income amount.

I note the complexity of the bill because a NewHire Tax Credit is given for unemployed vetereans and “disconnected youth”.  The disconnected youth ideally should be going to college but with the new American Opportunity credit available only in the first four years after high school the disconnected youth will be in affect ”disenfranchised” from the American Opportunity Credit because of the need to become employed.  The credit to the employer is equivalent to a 40 percent credit for th efirst $6,000 of wages paid to these two groups.

Below please find one of my tax advisors who is independent who I go to for continueing education for my Enrolled Agent designation.  Joy Wilen from Vancouver is a great speaker and extremely interesting to have as a speaker for the need of being and getting continueing education requirements satisfied by the Internal Revenue Service.

 

Following are highlights of the individual tax changes in the American Recovery and Reinvestment Act of 2009 (the Recovery Act) signed into law by the President on Feb. 17, 2009.

INDIVIDUALS

Making Work Pay Credit

New law

The Recovery Act provides eligible individuals with a refundable income tax credit for tax years beginning in 2009 and 2010. Code Sec. 36A , as added by Act Sec. 1001(a) 

The credit is the lesser of (1) 6.2% of an individual’s earned income or (2) $400 ($800 for a joint return). Code Sec. 36A(a) 

For these purposes, the earned income definition is the same as for the earned income tax credit with two modifications:

(a) it does not include net earnings from self-employment which are not taken into account in computing taxable income; and

(b) it includes combat pay excluded from gross income under Code Sec. 112 .

Code Sec. 36A(d)(2)The credit is phased out at a rate of 2% of the eligible individual’s modified AGI above $75,000 ($150,000 for a joint return). Code Sec. 36A(b)

OBSERVATION

The credit is reduced by any payment received by the taxpayer under Recovery Act Sec. 2201 or any credit allowed to the taxpayer under Recovery Act Sec. 2202 (these are recovery payments under the Veterans Administration, Railroad Retirement Board, and the Social Security Administration and credit for certain government workers, as discussed below). Code Sec. 36A(c) The failure to reduce the making work pay credit by the amount of such payments or credit, and the omission of the correct TIN (see below), are clerical errors. Code Sec. 6213(g)(2)(N) This allows IRS to assess any tax, resulting from such failure or omission without the requirement to send the taxpayer a notice of deficiency allowing the taxpayer the right to file a petition with the Tax Court. (Conference Agreement) An eligible individual is any individual other than: (1) a nonresident alien; (2) an individual with respect to whom another may claim a dependency deduction for a tax year beginning in a calendar year in which the eligible individual’s tax year begins; and (3) an estate or trust. Code Sec. 36A(d)(1)(A) An individual is not eligible if he does not include his social security number on the return. For joint filers, this requirement is met if the social security number of one of the spouses is included on the return. Code Sec. 36A(d)(1)(B) Any credit or refund allowed or made to an individual under this provision is not taken into account as income and is not taken into account as resources for the month of receipt and the following two months for purposes of determining eligibility of the individual or any other individual for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal program or under any State or local program financed in whole or in part with Federal funds. Act Sec. 1001(c)It is anticipated that taxpayers’ reduced tax liability under the provision will be expeditiously implemented through revised income tax withholding schedules produced by IRS. These revised schedules should be designed to reduce taxpayers’ income tax withheld for each remaining pay period in the remainder of 2009 by an amount equal to the amount that withholding would have been reduced had the provision been reflected in the income tax withholding schedules for the entire tax year. Conference Report 

Economic Recovery Payment to Recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits

The Recovery Act provides a one-time payment of $250 to retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, Railroad Retirement beneficiaries, and disabled veterans receiving benefits from the U.S. Department of Veterans Affairs. To be entitled to the $250 payment, the individual must have been eligible for one of the four benefit programs for any month during the three-month period ending with the month which ends before the month that includes the Feb. 17, 2009 date of enactment. Thus, to be entitled to the payment, the individual must have been so eligible during November or December of 2008 or January of 2009. Act Sec. 2201The one-time payment is a reduction to any allowable Making Work Pay credit (see above). Treasury must begin disbursing economic recovery payments as soon as practicable, but no later than June 17, 2009 (120 days after date of enactment).

 

 

Refundable Credit for Certain Federal and State Pensioners

Effective Feb. 17, 2009, the Recovery Act provide a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit (see above). Act Section 2202

Increase in Earned Income Tax Credit

New law

The Recovery Act increases the EITC credit percentage for families with three or more qualifying children to 45% for 2009 and 2010. Code Sec. 32(b)(3) , as amended by Act Sec. 1002(a)For example, in 2009, taxpayers with three or more qualifying children may claim a credit of 45% of earnings up to $12,570, resulting in a maximum credit of $5,656.50.

The Recovery Act also increases the threshold phaseout amounts for married couples filing joint returns to $5,000 above the threshold phaseout amounts for singles, surviving spouses, and heads of households) for 2009 and 2010 (subject to a further increase in 2010 for inflation). Code Sec. 32(b)(3)

Refundable Child Credit Eased

Currently, a taxpayer receives $1,000 tax credit for each qualifying child under the age of 17. To the extent the child credit exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15% of earned income in excess of a threshold dollar amount (the earned income formula). The threshold dollar amount was to have been $12,050 for 2008, as indexed for inflation. However, for the 2008 tax year, the Emergency Economic Stabilization Act modifies the earned income formula for the determination of the refundable child credit to apply to 15% of earned income in excess of $8,500. For 2009, the earned income formula for the determination of the refundable child credit is 15% of earned income in excess of $12,550 (as indexed for inflation).

OBSERVATION

The change to $8,500 for 2008 is pro-taxpayer in that in can result in a larger credit than could have been the case had the figure been $12,050.

Families with three or more children may determine the additional child tax credit using the “alternative formula,” if this results in a larger credit than determined under the earned income formula. Under the alternative formula, the additional child tax credit equals the amount by which the taxpayer’s social security taxes exceed the taxpayer’s earned income credit.

 

New law

The Recovery Act modifies the earned income formula for the determination of the refundable child credit to apply to 15% of earned income in excess of $3,000 for tax years beginning in 2009 and 2010. Code Sec. 24(d)(4) , as amended by Act Sec. 1003(a)

 

New American Opportunity Tax Credit

New law

The Recovery Act modifies the Hope credit for tax years beginning in 2009 or 2010. Code Sec. 25A(i) , as amended by Act Sec. 1004(a)The modified credit is referred to as the American opportunity tax credit. The credit is up to $2,500 per eligible student per year for qualified tuition and related expenses paid for each of the first four years of the student’s post-secondary education in a degree or certificate program. The modified credit rate is 100% on the first $2,000 of qualified tuition and related expenses, and 25% on the next $2,000 of qualified tuition and related expenses. Code Sec. 25A(i)(1) The definition of qualified tuition and related expenses is expanded to include course materials. Code Sec. 25A(i)(3) The credit is available with respect to an individual student for four years, provided he has not completed the first four years of post-secondary education before the beginning of the fourth tax year. Code Sec. 25A(i)(2) The credit is phased out ratably for taxpayers with modified AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). Code Sec. 25A(i)(4) The credit may be claimed against AMT. Code Sec. 25A(i)(5) Subject to an exception, forty percent of a taxpayer’s otherwise allowable credit is refundable. No portion of the credit is refundable if the taxpayer claiming the credit is a child subject to the kiddie tax under Code Sec. 1(g) . Code Sec. 25A(i)(6) The Recovery Act of 2009 requires IRS to conduct two studies and submit a report to Congress on their results not later than Feb. 17, 2010: a study on how to coordinate the Hope and Lifetime Learning credits with the Pell grant program; and a study on requiring students to perform community service as a condition of taking their tuition and related expenses into account for purposes of the Hope and Lifetime Learning credits. Act Sec. 1004(f)

 

Increased Transit and Vanpool Transportation Fringe Benefits

An employee can exclude qualified transportation fringe benefits provided by an employer from his gross income and from his wages for payroll tax purposes. These include parking, transit passes, vanpool benefits, and qualified bicycle commuting reimbursements. For 2009, up to $230 per month of parking benefits and up to $120 per month of transit and vanpool benefits (as indexed for inflation) are excludable from income.

New law

For months beginning on Mar. 1, 2009 and before Jan. 1, 2011, the Recovery Act increases the monthly exclusion for employer-provided transit and vanpool benefits to the same level as the exclusion for employer-provided parking. Code Sec. 132(f)(2) , as amended by Act Sec. 1151

Computers as Education Expenses under 529 Plans

A person can make nondeductible cash contributions to a qualified tuition program (QTP, or 529 plan) on behalf of a designated beneficiary. The earnings on the contributions build up tax-free and distributions from a QTP are excludable to the extent used to pay for qualified higher education expenses. A QTP is a tax-exempt program established and maintained by a state (including a state agency or instrumentality), or one or more eligible educational institutions (including private ones) under which a taxpayer may: (1) buy tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to a waiver or payment of qualified higher education expenses—i.e., a prepaid educational services account, or (2) make contributions to an account set up to meet the designated beneficiary’s qualified higher education expenses—i.e., an educational savings account. This option is available only for state (or state agency or instrumentality) programs.

Qualified higher education expenses for QTP purposes are: (a) tuition, fees, books, supplies, equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution, and expenses for special needs services; and (b) room and board costs (subject to a limit) for students who are at least half-time.

New law

Under the Recovery Act, expenses paid or incurred in 2009 or 2010 for the purchase of any computer technology or equipment or Internet access or related services qualify as qualified education expenses under QTPs if such technology, equipment, or services are to be used by the QTP beneficiary or his family during any of the years the beneficiary is enrolled at an eligible educational institution. Code Sec. 529(e)(3)(A)(iii) , as amended by Act Sec. 1005(a)Expenses for computer software designed for sports, games or hobbies do not qualify under Code Sec. 529(e)(3)(A)(iii) unless the software is predominantly educational in nature. Code Sec. 529(e)(3)(A)(iii)  

First-time Homebuyer Credit Eased

For qualifying purchases of principal residences in the U.S. after Apr. 8, 2008 and before July 1, 2009, eligible first-time homebuyers may claim a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately).

A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies.

OBSERVATION

Because only prior ownership in a principal residence is considered, it’s possible for a taxpayer who already owns a vacation home to claim the new credit, if he otherwise qualifies. For example, a taxpayer whose principal residence for at least three years has been a rental apartment in the city, and who owns a seaside home, could claim the credit for the purchase of a new principal residence if his modified AGI doesn’t exceed the phaseout levels discussed below.

Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on Dec. 31, 2008.

The first-time homebuyer credit phases out for individual taxpayers with modified AGI between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase.

The credit for new homebuyers is recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax amount equal to 6 2/3% of the amount of the credit. This repayment obligation may be accelerated or forgiven under certain exceptions.

OBSERVATION

In other words, the credit for new homebuyers is the equivalent of a long-term interest-free loan from the government.

 

 

New law

The Recovery Act extends the credit so that it applies to purchases before Dec. 1, 2009. Code Sec. 36(h) , as amended by Act Sec. 1006(a)In addition, it waives the recapture of the credit for qualifying home purchases after Dec. 31, 2008. This waiver of recapture applies without regard to whether the taxpayer elects to treat the purchase in 2009 as occurring on Dec. 31, 2008. If the taxpayer disposes of the home or the home otherwise ceases to be the principal residence of the taxpayer within 36 months from the date of purchase, the pre-Recovery Act 2009 rules for recapture of the credit apply. Code Sec. 36(f)(4)(D) The Recovery Act also increases the maximum homebuyer credit to $8,000. Code Sec. 36(b)The Recovery Act also provides that no D.C. homebuyer credit is allowed to any taxpayer with respect to a 2009 residence purchase if a credit is first-time homebuyer credit is allowable to the taxpayer under Code Sec. 36 . Code Sec. 1400C(e)(4)

 

Partial Exclusion of Unemployment Compensation

An individual must include in gross income any unemployment compensation benefits received under the laws of the U.S. or any State.

New law

Under the Recovery Act, up to $2,400 of unemployment compensation benefits received in 2009 are excluded from gross income by the recipient. Code Sec. 85(c) , as amended by Act Sec. 1007

New Temporary Deduction for Sales and Excise Taxes on Car Purchases

Taxpayers who itemize deductions may elect to deduct state and local general sales and use taxes instead of state and local income taxes, for tax years beginning before 2010.

New law

For purchases on or after Feb. 17, 2009 and before Jan. 1, 2010, the Recovery Act provides a deduction for qualified motor vehicle taxes. It expands the definition of taxes allowed as a deduction to include qualified motor vehicle taxes paid or accrued within the tax year. Code Sec. 164(b)(6) , as amended by Act Sec. 1008 The deduction generally is allowed to itemizers. It also is allowed to those claiming the standard deduction. Code Sec. 63(c)(1)(E) Qualified motor vehicle taxes are State or local sales or excise taxes imposed on the purchase of a qualified motor vehicle. Code Sec. 164(b)(6)(A) Only taxes on that portion of the cost of a qualified motor vehicle not exceeding $49,500 ($24,750 for a married person filing separately) may be deducted. Code Sec. 164(b)(6)(B) The amount of sales or excise taxes that may be treated as qualified motor vehicle taxes is phased out ratably for a taxpayer with modified AGI between $125,000 and $135,00 ($250,000 and $260,000 on a joint return). Code Sec. 164(b)(6)(C) A qualified motor vehicle is a (1) passenger automobile, light truck or motorcycle the gross vehicle rating of which is not more than 8,500 pounds and (2) a motor home the original use of which commences with the taxpayer. Code Sec. 164(b)(6)(D)

The deduction for qualified motor vehicle taxes is not available to a taxpayer who elects to deduct state and local sales and use taxes in lieu of income taxes as an itemized deduction. Code Sec. 164(b)(6)(F) The deduction for qualified motor vehicle taxes is allowed in computing the AMT. Code Sec. 56(b)(1)(E)

Limited-Time-Only Subsidy for COBRA Continuation Coverage of Unemployed Workers

The Recovery Act of 2009 provides a 65% subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated, and for their families. This subsidy also applies to health care continuation coverage if required by states for small employers. To qualify for premium assistance, a worker must be involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. The subsidy terminates upon offer of any new employer-sponsored health care coverage or Medicare eligibility. Workers who were involuntarily terminated between Sept. 1, 2008 and Feb. 17, 2009, but failed to initially elect COBRA because it was unaffordable, must be given an additional 60 days to elect COBRA and receive the subsidy. Participants must attest that their same-year income will not exceed $125,000 for individuals and $250,000 for families. Act Sec. 3001The subsidy is not taxable. Code Sec. 139C , as added by Act Sec. 3001

 

 

 

 

 

 

 

ALTERNATIVE MINIUM TAX PROVISIONS

Following are highlights of the alternative minimum tax (AMT) tax changes in the American Recovery and Reinvestment Act of 2009 (the Recovery Act) signed into law by the President on Feb. 17, 2009.

Boosted AMT Exemption Amounts for 2009

New law

For tax years beginning in 2009, the Recovery Act increases the AMT exemption amounts to:

… $46,700 (up from $46,200 in 2008) for unmarried individuals;

… $70,950 (up from $69,950 in 2008) for married couples filing a joint return and surviving spouses; ( Code Sec. 55(d)(1) , as amended by Act Sec. 1012(a))

… $35,475 (up from $34,975 in 2008) for married individuals filing separate returns.

OBSERVATION

The Recovery Act’s increases in the AMT exemption amounts are a temporary fix only. Absent Congressional action, the 2010 AMT exemption amounts for individuals will revert to the levels they were at for 2000. The one-year AMT “patch” has the effect of postponing for one year the reductions in those amounts that, under pre-Recovery Act law, were scheduled to go into effect for tax years beginning after 2008. Thus, these reductions are now scheduled to go into effect for tax years beginning after 2009, i.e., for 2010 and later years.

Personal Nonrefundable Credits May Offset AMT and Regular Tax for 2009

Under pre-Recovery Act law, for tax years beginning after 2008, the nonrefundable personal tax credits (other than the adoption credit, the child tax credit, the low-income saver’s credit, the residential energy efficient property, and the non-depreciable property portion of the plug-in electric car credit) were allowed only to the extent that their aggregate amount didn’t exceed the excess of: (a) the taxpayer’s regular tax liability, over (b) his tentative minimum tax, determined without regard to the alternative minimum tax foreign tax credit.

OBSERVATION

Thus, under the pre-Recovery Act provisions, the nonrefundable personal credits generally (except for the five credits noted above) couldn’t offset AMT. The AMT could also indirectly limit a taxpayer’s nonrefundable personal tax credits even in situations where the taxpayer wasn’t liable for the AMT.

New law

For tax years beginning in 2009, the Recovery Act provides that the aggregate amount of nonrefundable personal credits can’t exceed the sum of: (1) the taxpayer’s regular tax liability for the tax year, reduced by the foreign tax credit, and (2) the AMT. Code Sec. 26(a)(2) , as amended by Act Sec. 1011(a)(1)

OBSERVATION

Alternative Motor Vehicle Credit Allowed Against AMT

For tax years beginning after Dec. 31, 2008, the Recovery Act provides that the alternative motor vehicle credit is a personal credit allowed against the AMT. Specifically, the alternative motor vehicle credit for any tax year (determined after the application of the rules that treat the portion of the alternative motor vehicle credit attributable to depreciable property as a general business credit) is treated as a personal credit for the tax year. Code Sec. 30B(g)(2)(A) , as amended by Act Sec. 1144(a)

Repeal of AMT Limits on Tax Exempt Bonds Issued in 2009 and 2010

New law

For interest on bonds issued after Dec. 31, 2008 and before Jan. 1, 2011, the Recovery Act provides that tax-exempt interest on private activity bonds issued isn’t an item of tax preference for purposes of the alternative minimum tax (AMT). Code Sec. 57(a)(5)(C)(vi) , as amended by Act Sec. 1503(a)

ENERGY TAX PROVISONS

Nonbusiness Homeowners Energy Credit Extended to 2010 and Modifie

dUnder pre-Recovery Act law, for property placed in service in 2009, a taxpayer could claim a lifetime nonrefundable credit of up to $500 for making qualifying energy saving improvements to his home, but only $200 of this credit amount could be for qualifying window expenditures. The expenses had to be made on or in connection with a dwelling unit located in the U.S., owned and used by the taxpayer as his principal residence, and originally placed in service by the taxpayer. The credit per improvement was:

(1) 10% of the cost of energy efficient building envelope components which meet criteria established by the 2000 International Energy Conservation Code. These consist of: insulation materials or systems that reduce heat loss/gain; exterior windows (including skylights); exterior doors; and certain metal roofs with pigmented coatings or (where placed in service after Oct. 3, 2008) asphalt roofs with cooling granules (which meet the Energy Star requirements) designed to reduce heat gain. The components must be expected to last for at least five years.

(2) Residential energy property expenses (including labor costs) for onsite preparation, assembly, or original installation which meet specific standards in an amount up to:

… $300 for the cost of energy-efficient building property (electric heat pump water heater, electric heat pump; central air conditioner; natural gas, propane or oil water heater; or a stove burning biomass fuel to heat or provide hot water to a taxpayer’s residence in the U.S.) that meets specific energy efficiency standards).

… $150 for a natural gas, propane, or oil furnace or hot water boiler.

… $50 for an advanced main air circulating fan.

Under pre-Recovery Act law, an individual’s expenditures from subsidized energy financing—i.e., financing provided under a Federal, State, or local program with a principal purpose of providing subsidized financing for projects designed to conserve or produce energy—wasn’t taken into account for purposes of the credit.

New law

The Recovery Act extends the Code Sec. 25C nonbusiness energy tax credit for one year through Dec. 31, 2010. Code Sec. 25C(g)(2) , as amended by Act Sec. 1121(e)For tax years beginning after Dec. 31, 2008, for property placed in service before Jan. 1, 2011, the Recovery Act raises the 10% credit rate to 30%. All energy property otherwise eligible for the $50, $100, or $150 credits is instead eligible for a 30% credit on expenditures for the property. Code Sec. 25C(a) In addition, the $500 lifetime cap (and the $200 lifetime cap for windows) is eliminated and replaced with an aggregate cap of $1,500 for property placed in service after Dec. 31, 2008 and before Jan. 1, 2011. Code Sec. 25C(b)

Effective on Feb. 17, 2009, there are revised standards for energy efficient building property (electric heat pumps, central air conditioners and water heaters), oil furnaces and hot water boilers, and exterior windows, doors, and skylights. For tax years beginning after 2008, a revised standard also applies for stoves using biomass fuels. Code Sec. 25C(c) , Code Sec. 25C(d) For tax years beginning after Dec. 31, 2008, the limitation on subsidized energy financing is also eliminated. Code Sec. 25C(e)(1) , as amended by Act Sec. 1103(b)(2)

 

 

Cap on Residential Energy Efficient Property Credit Eliminated

For property placed in service before 2017, an individual is allowed a 30% credit for the purchase of residential energy efficient property, such as qualified solar energy property (i.e., property that uses solar power to generate electricity in a home); and qualified fuel cell property, up to a maximum credit of $500 for each 0.5 kilowatt of capacity. Under pre-Recovery Act law, the credit was also allowed for:

… qualified solar water heating property, up to a maximum credit of $2,000;

… qualified small wind energy property, up to $500 for each half kilowatt of capacity (not to exceed $4,000); and

… qualified geothermal heat pump property, up to $2,000.

Under pre-Recovery Act law, rules covered the treatment of joint occupants in allocating the credit taking these maximum limits into account for purposes of residential energy efficient property credit.

Under pre-Recovery Act law, an individual’s expenditures from subsidized energy financing—i.e., financing provided under a Federal, State, or local program with a principal purpose of providing subsidized financing for projects designed to conserve or produce energy—wasn’t taken into account for purposes of the credit.

New law

For tax years beginning after Dec. 31, 2008, the Recovery Act eliminates the credit caps for solar hot water, geothermal, and wind property. Code Sec. 25D(b) , as amended by Act Sec. 1122 The rules covered the treatment of joint occupants are revised to only apply to qualified fuel cell property. ( Code Sec. 25D(e)(4) ) For tax years beginning after Dec. 31, 2008, the limitation on subsidized energy financing is also eliminated. Code Sec. 25D(e) , as amended by Act Sec. 1103(b)

 

 

 

 

 

 

 

 

 

 

 

 

BUSINESS PROVISIONS

Additional 50% First-Year Depreciation OK’d for Most Types of New Depreciable Property Placed in Service in 2009

New law

For property placed in service after Dec. 31, 2008, in tax years ending after that date, the Recovery Act provides an additional depreciation deduction in the placed-in-service year equal to 50% of the adjusted basis of “qualified property.” Code Sec. 168(k)(1) , as amended by Act Sec. 1201(a)The property generally must be acquired before Jan. 1, 2010 (before Jan. 1, 2011 for certain longer-lived property).

First-Year Depreciation Dollar Cap for New Passenger Autos Placed in Service in 2009 Raised by $8,000

Retroactively effective for vehicles bought and placed in service after 2008, the Recovery Act increases by $8,000 the first-year depreciation dollar limit for a passenger auto that is “qualified property” meeting the original use and acquisition and placed-in-service requirements. Code Sec. 168(k)(2)(F)(i)

OBSERVATION

Recovery Act Boosts Code Sec. 179 expensing for 2009

For tax years beginning in 2009, the Recovery Act increases the expensing limit to $250,000 and the investment ceiling limit to $800,000. The $250,000 and $800,000 amounts are not indexed for inflation. Code Sec. 179(b)(7) , as amended by Act Sec. 1202

Small Businesses May Elect Longer NOL Carryback Period

New law

For NOLs arising in tax years ending after Dec. 31, 2007, the Recovery Act permits small businesses to elect to increase the NOL carryback period for an applicable 2008 NOL (the “applicable NOL”) from 2 years to any whole number of years which is more than 2 and less than 6. Code Sec. 172(b)(1)(H) , as amended by Act Sec. 1211(a)A small business for this purpose is defined as a corporation or partnership that meets the gross receipts test of Code Sec. 448(c) (applied by substituting $15 million for $5 million) for the tax year in which the loss arose, or a sole proprietorship that would meet that test if the proprietorship were a corporation. This means any trade or business (including one conducted in or through a corporation, partnership, or sole proprietorship) whose average annual gross receipts (under Code Sec. 448(c) , as modified) are $15 million or less.

Reduced Estimated Tax Burden in 2009 for Individuals With Small Businesses

New law

Effective on Feb. 17, 2009, the Recovery Act provides that notwithstanding Code Sec. 6654(d)(1)(C) , for any tax year beginning in 2009, in computing the amount of the required annual installments of estimated income tax of any qualified individual, “required annual payment” means the lesser of (1) 90% of the tax shown on the return for the tax year, or (2) 90% of the tax shown on the return of the individual for the preceding tax year. Code Sec. 6654(d)(1)(D) , as amended by Act Sec. 1212; Committee ReportA qualified individual means any individual if the AGI on the tax return for the preceding tax year is less than $500,000 ($250,000 if married filing separately) and the individual certifies that at least 50% of the gross income shown on the return for the preceding tax year was income from a small trade or business. For estates and trusts, AGI is determined under Code Sec. 67(e) . A small trade or business is one that employed no more than 500 persons, on average, during the calendar year ending in or with the preceding tax year. Code Sec. 6654(d)(1)(D)(iii)

END

 

 

 

 

 

 

 

 

House Bill 1793 – alternative student transportation

House Bill 1793 – alternative student transportation

http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/House%20Bills/1793.pdf

from page 1, line 19 equal to one percent of all funds, both state andfederal, expended for the construction of state highways in such year

This amount is being increase from the previous bill from three-tenths of one percent to one percent. For an extremely negative amount showing in the budget perhaps to as much as $8 Billion this increase would show imprudence on the part of the legislators in the State of Washington.

Yes, I would agree that sound and safe pathways for school children should be a priority but these funds should be coming from the general budget and not from the vehicle tax imposed for improving our roads. Perhaps each city and county needs to pass a bond for this extra item. Later, if the budget is fixed, then and only then should extras be put in the capital construction budget. Once again, the left sided agenda is putting pressure on the infrastructure and making it want for a better purpose. Social programs should be reduced or eliminated in order to make programs such as this safety feature a reality.

END

House Bill 1612 – Prevention of unintended pregnancies and sexually transmitted diseases

House Bill 1612 – Prevention of unintended pregnancies and sexually transmitted diseases

http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/House%20Bills/1612.pdf

On page 2, line 9-12 reads: ” ‘Evidence-based’ means a program that uses practices proven to the greatest extent possible through research in compliance with scientific methods to effective and beneficial for the target population.

What this means to me is that they say they are right all of the time and I am wrong all of the time. Such arrogance.

In the olden days the scientific methods were:

1) Get the shotgun out honey, we are going to have a wedding tonight. This was just after the board in the center of the bed was kicked out.

2) What is wrong with the mother or father or the brothers and sisters being around each other continually while in the presence of a non-family member. This can reduce pregnancy and sexually transmitted diseases to unprecedented levels.

3) Why does a scientific method need to be introduced when true unscientific methods have been used and have stood up to the test of time.

Is it really a duty of the state government to watch over someone when the family unit is supposed to do this. The basic government formation is the family unit.

END

 

HB 2133 – Accumulated sick leave for volunteer work

HB 2133 – Accumulated sick leave for volunteer work

http://apps.leg.wa.gov/billinfo/Summary.aspx?bill=2133&year=2009

This bill in its conceptualization seems to be of a positive good-hearted nature. But. This is exactly the opposite of what the employee and the State need for achieving overall personal and state goals.

The purpose of accumulating and even of having sick leave is to be able to continue with the payment of bills if and ever if an accident or a catastrophic illness occurs. Twenty-two days is but only a little bit over one month of accumulation of sick pay. For all purposes this is not enough if a serious illness does occur.

This bill will create ill-will and disillusionment on the part of the government employee. “I helped out during my communities mishappenings and now that I am sick no one else is helping me” syndrome. The world, yes, is cruel and benevolence is noteworthy.

The objective of sick pay is to be accumulated while one is sick and not having money come in because of the reliance upon a continuation of cash flow. Long-term care insurance which would take over in about three months or six months is taken out to guard against the real catastrophies of life. There is no sense in having this catastophe compounded by making the employee suffer financially for five months period of time rather than a shorter period of time.

Ideally the accumulation of sick leave up to the point where the long-term care insurance kicks in is the primary objective of sick pay.

Under current federal law a retiring individual can specify that remaining sick leave be used to pay for health insurance or to be paid out in a lump sum. This lump sum in cash would obviously be taxable. The accumulation of one of the major costs of retirement for future years benefits would greatly enhance the senior citizens prospects of surviving in a more comfortable fashion rather than being paid for the current acts of kindness which would have been better served as future income rather than meeting present income needs.

In no way is this bill in the benefit of the employee overall and in no way is this bill in the best interest of the community and in no way is this bill in the best interest of the greater State of Washington.

This bill also violates the entire premise of sound financial planning for the retirement years which would be ahead.

 

 

 

Senate Bill 6900 – Vehicle Emission Fees

Senate Bill 6900 Washington Legislature

 I just read the bill.  The bill does not allow for adjustments to the fee for the end consumer modifiying the CO2 emissions of their engine’s discharge.  An example of this would be to use “Brown Gas” for burning in an engine.   Another would be using butanol instead of or also using ethanol.   What about mechanical improvements which are still on the back burner at the inventors office.  (Sorry about the pun but could not resist.  Actual a client of mine is researching something which will extend the burn of gasoline.  He is in the car testing stage of different car models.)  A bit of mechanical work is needed for the engine to be able to switch to using brown gas.  Brown gas is a mixture of gas and water put into the carburator.  The CO2 emission table does not include the usage of any type of non-fossil fuels for the granting of a reduction in the application of the additional fees from the manufacturers CO2 tables.  This table is punitive and short sighted for the end objective which the bill is trying to address.  Instead of reducing CO2 emissions the actual results will be to increase the amount of CO2 emissioon due to complacency on the part of the end consumer.  If a tax/fee is imposed and compliance for a reduction in CO2 emission is not rewarded then marginal environmentalist will not feel compelled to push their hard earned funds toward the CO2 reduction.

 This is a tax without the possibility of eliminating the tax by attempting to satisfy the objective of the bill. 

 The objective of mitigating the impact of vehicle loads on the state roads adn highways could better be addressed by levying fees for the usage of studs on tires.  However, this would radically change on eof the objectives of the Transportation department and the engineering factors in roads.  This would increase the road hazards of driving on winter ice.  A small fee in some cases can cost an immense amount of money and not just in the cost of monetary funds but in the happiness or enjoyment of the family unit and the greater family unit and of society.

Senate Bill 5104 income tax vs sales tax comparison

 Senate Bill 5104

 Senate Bill 5104 will cost almost everyone more money. So a supposedly regressive sales tax is actually a progressive tax compared to a sales tax couple with an income tax. Below are some of my findings.

I used the federal sales tax tables from Pub 600 to help in the calculations of the sales tax. The Washington States

 Sales Tax Tables in the IRS publication starts at 6.5% so I had to use a numerator of 6.00 and a denominator of 6.5 and multiply this quantity by the equivalent sales tax table amount.

 I used an income of $40,000, $35,000, $30,000 and $25,000. My filing status criteria was Single with no additional dependents, married filing jointly with the taxpayer and spouse each claiming an exemption and also maried filing jointly with the taxpayer and spouse each claiming an exemption for a retired couple with no earned income and a head of household with one dependent so claiming two exemption.

 Here are my findings:

                 income tax       present sales tax      difference

Single with

 40,000         1358.25           839.00                    519.25

$35,000         1109.25          727.00                    382.25

$30,000         971.20            727.00                    244.20

$25,000         774.20           590.00                    184.20

 

Head of Household with one dependent or two exemptions

$40,000          1229.40         947.00                    282.40

$35,000          1035.40         821.00                    214.40

$30,000           925.40          821.00                   104.40

$25,000           717.90          674.00                   43.90

 

Married Filing Jointly Two exemptions Adequate Earned income.

$40,000           1163.40        947.00                 216.40

$35,000           969.40         821.00                 148.40

$30,000            859.40         821.00                38.40

$25,000           651.90         674.00                 -22.60

Married Filing Jointly Two exemptions but no Earned Income/Retired

$40,000            1383.40       947.00                436.40

$35,000            1189.40       821.00                368.40

$30,000            1079.40       821.00                258.40

$25,000            871.90         674.00                197.90

 And as you can see the only negative is with a $25,000 married filing jointly couple claiming themselves. The differnce is $22.60 at a $25,000 income which would not pay for the difference in the tax preparation charges.

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Senate Bill 5104 – Washington State Income Tax

Senate Bill 5104 – Washington State Income Tax.

http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/Senate%20Bills/5104.pdf

page 3, line 9-10. Claims the state of Washington as the individual’s tax home for federal income tax purposes.
 
That this really means is that a domicile can be in Washington State and the tax home can be in Oregon and the individual would be claiming as a resident of Oregon. This is counter to all of the other states which go according to residence and not according to “tax home”.
 
Page 6. line 7. The amount of business and occupation tax paid.
 
This is really a double taxation system whereby one must still pay a business and occupation tax and on the final tax return adjust the difference between the income tax and the final business and occupation tax. This should be a waste of paper for filing purposes but is just a method of collecting on-going estimated taxes from an individual and business and occupation taxes from a business. This gives the state massive funds during the first year and creates a massive cash flow burden on small business owners. They would be pay a double taxing system for the first year.
 
page 6, line 32. Carryforwards and Carrybacks.
 
There shall be no carryback or carryforward of any unused excess credits.
 
A federal NOL would still generate income for the state in this situation.
 
page 5. Line 1 and 2.
a credit against the tax imposed under this title for the amount of any income tax imposed by another state.
 
This calculation is not the normal type of calculation for other state taxes paid. With this a higher state tax from say California would wide out the tax from Washington State. So if the amount of the tax in California for an equivalent amount of income was $1000 then the tax here was $225 then no state taxes would be owed to Washington State. However looking at this from another viewpoint the income from Kansas for the same income was $150 and Washington State was $225 then an additional tax of $75 would be owed. Income from Arizona could be lower than Washington State with oh let’s say an income of $10,0000 for Arizona and a tax of $5000. In Washington a tax of 6,000 from $50,000 and only $1000 would be owed. Total income from both states being $150000. Most all other states base the other state income on a proportional basis based upon the equivalent Washington State tax amount of that income. This method can be punitive to the low taxing state and aggressive for the high taxing state.
 
page 5. line 20 – 22. payment of income taxes on income earned for personal services performed in such jurisdiction, then the director is authorized to enter into a reciprocal agreement.
 
Here this is not normal with other states treatment of reciprocal agreements. The meaning of earned income includes wages or items on line 7 of Form 1040. Earned income would also include amounts of business income and amounts from some pass-through entities such as S-corps and partnerships. Trusts and estates would not be earned income. But the other reciprocal agreement states only include wages earned in their states while a Washington State resident would be working in Oregon for example. But again if we are referring to tax home the tax home could very well be Oregon while a resident lives in Washington State and then the resident would only be subject to wages earned in Oregon in the subsequent years after one year of commuting.
 
page 5, line 25 – 30.
Dual residence.
If an individual is regarded as a resident both of this state and another jurisdiction for state personal income tax purposes, the department must reduce he tax on that portion of the taxpayer’s income which is subjected to tax in both jurisdictions solely by virtue of dual residence, if the other taxing jurisdiction allows a similar reduction.
 
From the above and immediate above for the above meaning and the reciprocal agreement Oregon law is special with respect to all other states. A special agreement must be signed with Oregon State for allowing of any reciprocal agreement or allowing state income taxes to be deducted from payments to other state for income tax purposes. Oregon may be punitive for border workers in this situation.
 
page 4. line 6-27. Filing status tax rate tables.
 
Unfortunately this is a very questionable area. This part of the law could be promoting domestic partnerships to flourish or not to flourish. I am not seeing anything in the prior lines to the page and in the bill which specifically address domestic partners or domestic partnerships or civil unions. My conclusion by reason of the absence is that although the wording says that IRS Code takes precedence with not included provisions for domestic partners, etc. then is the state specifically not going to tax these individuals. The state recognizes domestic partnerships, etc. and I would assume that all domestic partners would say they are domestic partners and not single and thus not subject to any type of income tax because the bill does not identify them in the bill.
 
page 4. line 28, 29. Taxable income of a taxpayer exempt from taxation by internal revenue code section 501 is exempt from taxation by this title.
 
This is the nontaxable items mention in the law. Here Indian income on a reservation from wages is exempt. Is this the intent of the state income tax bill. Public Activity Bonds are specifically taxable in the federal but does the state not want to tax this. All of the other states have provisions to exclude this as being taxed. The bill is silent on excluding this as income. The bill does not allow an adjustment from the income tax on this issue. It does allow for an addition adjustment for municipal from other states bonds to be added to income for the state if a state resident.
 
page 7. line 6-10. Sec 402 State and local obligations.
 
Again this section does not subtract PAB because these would be federally taxable. This section acts to add back income only which has previously been excluded under section 103 of the internal revenue code. This section was actually from a court case which the IRS code later adopted.
 
page 7, line 18-24. Net Operating Loss.
May not include a loss carried back from a future year.
 
This would not allow carrybacks as permitted from federal law to be included. So in affect a dual accounting of books would have to be included in all taxing amounts. Also, if AMT amounts are included then an additional set of books would be to be “carried forward”. This provision is a carryback were allowed would have no affect from earlier years of not having a state income taxing system for the state but would be catastrophic for the individual. This would require retroactively an additional bookkeeping system from NOL carrybacks from prior to the bill creation to be kept. A 2005 NOL created and carried back to 2003 would carry forward and if carried forward would affect the calculations to be adjusted based upon the 2005 NOL amount adjusted for the state income taxing system.
 
page 7, line 25 to 28.
 
This section specifically disallows carried over amounts created from taxable years ending before the effective date of this title. So the carryover amounts have to be first created in the year of the creation of the bill.
 
page 8, line 8-12. Section 407.
Joint return or a surviving spouse, seven thousand dollars if only one spouse has earned income and seven thousand dollars plus the earned income of the spouse with the lesser income, not to exceed ten thousand dollars in total, if both spouses have earned income.
 
What this is really saying is that the retired and those who are not working but have other sources of income besides earned income will not be allowed to have a standard deduction. The definitions are all taken from the IRS code and earned income as previously mentioned is wages or amounts reflected to Form 1040, line 7, Form 1040A,
line 7, Form 1040NR, line 7 or Form 1040EZ, line 1. Business income is also included in earned income. Also, income from partnerships and S-Corp pass-through amounts reported on Schedule E would be included as earned income unless a passive partner or member. All the other states include gross income or adjusted gross income in this instance. However, for Revenue Canada purposes I have seen this and this mimics the Canadian Income taxing system whereby a spouses earned income is included when making a calculation for an additional deduction proportion. Do we really want to be mimicking Canada is this context. Please advise.
The standard deduction for married filing jointly is not expressed if the couple does not have any earned income thus the amount of the standard deduction would be zero in this case.
 
page 8, line 17-19. A personal exemption deduction in the amount of two thousand nine hundred dollars is allowed for each individual for whom a personal exemption deduction is allowed for federal income tax purposes.
 
This provision is both gratifying to the higher income tax levels and punitive to the higher income tax levels. The provision does not allow for a phase-out of the personal exemption but when the exemption is at zero or not allowed by the federal income taxing system the personal exemption immediately cuts off and is zero. All or nothing.
 
page 8, line 20-29. Personal exemption for a no-income spouse who has not filed then the other filing spouse taxpayer can claim an additional personal exemption on their return.
 
This provision is demanding that only one of the married couple have income. The standard deduction in this case would be $7,000 and the over sixty-five personal exemption would be increased from one thousand to two thousand. The senior citizen with no gross income is being punished here.
 
Back to page 8, line 8-12. Earned income.
 
This is a community property state so the requirement of having earned income from wages in a community property state are shared equally by both spouses. I see a provision often in non-community property states for such a split as being allowed or demanded here for the test of the amount of a standard deduction being given. This is also a provision in the Revenue Canada system which requires everyone to file an individual income tax. There is no provision for a married couple filing on one income tax return. The only exception is an additional amount as provided if the other spouse does not have any income.
 
For the standard deduction and married the requirement is to have earned income and if not then no standard deduction is allowed. But for the other filing statuses no earned income test is required and the amount is a set standard amount.
 
The married filing jointly additional exemption and is over 65 an additional exemption is allowed. The bill is silent and thus would not allow an additional exemption for the spouse if the spouse has attained the age of 65 or over and a joint return is filed and the other spouse has some gross income. This could be income from interest for a rainy day fund. This is extremely punitive for the married senior citizen.
 
The same test seems to be included for an additional blind exemption as relating to the calculations for the married and the spouse with no income versus some income. Again, this is extremely punitive to those who are married filing a joint return.
 
page 14, line 6-15. Sec 604. … exemption declaration filed for federal income tax purposes does not properly reflect the number of withholding exemptions to which the employee is entitled.
 
This provision only allows the department to increase the number of exemptions and only by one as I am reading the bill. “an additional withholding exemption” The problem with this provision of the bill is that if too many exemptions are being declared for withholding purposes then a smaller amount of money is going into the state withholding system. So in affect the amount owing at the year if overstating exemption is a greater amount owing to the state at the end of the year. For the state to be requiring an additional exemption being included would be to further reduce the amount in withholding from the paycheck and further increase the amount of taxes owed at the end of the year.
 
Come on guys you have to start reading what you are writing and if you do not understand the provision you need to seek “professional help”. Attorneys and story telling are supposed to be scenonamous. Get our act together boys.
 
page 14, line 20-26. Any employer, … fails to collect the tax herein imposed or having collected the tax, fails to pay it to the department, the employer or responsible person shall, nevertheless, be personally liable to the state for the amount of the tax. The interest and penalty provisions of chapter 82.32 RCW shall apply to this section.
 
Absolutely no state is this punitive to a bookkeeper. Is the payroll clerk now needing to collect personal income tax returns to verify the accuracy of the number of exemption required. Is the payroll clerk needing to continually get information from other employers as to the income earned so as to know when to start including income after the taxpayer has indicated they are exempt from state income tax withholding and now have enough earning in order to pay income tax to the state. This provision is meaning to say one thing but while reading it the phrasing is clearly in the addressing of civil penalties. Even the wording of “responsible person” is included and the bill states that definitions of words are copied from the Internal Revenue Code. So if a withholding amount is not caught the department can tax the bookkeeper to the extent of the amount of the withholding not included to cover state income tax. Whoever pays first or whoever is garnish or levied first would then be having to file a lawsuit to collect the income taxes due. See also Sec 701 later.
 
page 15. line 5-10. Threshold for estimated taxes and attachment of penalties.
less than five hundred dollars.
 
This provision is average. Some states are wanting a $100 or $200 minimum before tax penalties are attached. A five hundred dollar amount is a safe amount of money. The federal government has $1000 minimum and above an interest penalty is attached. Other safe harbour tests are given. A 90 percent and a 100 percent test which is the same as the safe harbour test for the federal income tax.
 
page 15, line 20-26. Section 701. Crimes
…required to collect tax imposed…is guilty of a class C felony. …knowingly fails to pay tax…is guilty of a gross misdemeanor.
 
So for not collecting the taxes as an employer or a bookkeeper not only would civil penalties apply but a class C felony would apply. Not filing an income tax return would just be a gross misdemeanor. Seems like these two should be reversed or further clarified.
 
page 16, line 32-34 At the later of thirty days following the final determination of the adjustment or the date of the filing of the corrected return.
 
These are the provisions for the start of the statute of limitation after the correction. Even though I see the wording for the statute-of-limitations I am not seeing what the time is for the statute to run out. If it corresponds to the federal return great.
 
page 17, line 10-13. Notwithstanding the limitation of RCW 82.32.090, in the case of the late filing of an information return, there is imposed a penalty the amount of which is established by the department by rule. The penalty may not exceed fifty dollars per month for a maximum of ten months.
 
So if I have 20 employees and not enough money to pay the bookkeeper the amount of penalty would be $12,000. Or would some of the previous provisions require the bookkeeper who produced the w-2s but has not been paid as of yet to hand over the w-2s in order to avoid the $12,000 penalty.
 
page 15, line 23-25 states the following.
(3) Any person who knowingly fails to pay tax, pay estimated tax, make returns, keep records, or supply information. as required under this title, is guilty of a gross misdemeanor as provided in chapter 9A.20 RCW.
 
My conclusion now is that the bookkeeper who has not been paid could be subject to the responsible person rules and thus civil penalties and thus subject to a class C felony and also if not paid and withholding documents subject to a $50 per month fee and a gross misdemeanor. Four separate items and never being paid for any of the work. I can see the expense for bookkeeping or at least for a payroll clerk at large corporations with questionable finances exceeding the pay of some of the top attorneys in the nation. This is also part of the reason of why CEOs and CFOs get big payment packages. The CEO and CFO would also be subject to these same risks. Civil penalties are determined by who makes out the checks and signs the checks and now who assembles the paper work so the checks can be signed.
 
The bill allows for the continuation of the sales tax but at a lower rate. The bill also if the bill SJR….(S-0560/09) is not approved and ratified, this entire act is null and void in its entirety.
 
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HB 1495 – Real Estate Tax exemption for Low-Income Earners

HB 1495 – Real Estate Tax exemption for Low-Income Earners

http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/House%20Bills/1495.pdf

This bill seems to be quite the benevolent bill. but further reading indicates the limitations which are inherant in the bill.

The first mistake in the bill requires a thirty-year fixed-rate mortgage. This might be good at first glance but what about a twenty year mortgage or a fifteen year mortgage. Or even better what about a forty year mortgage. The bill is not as elastic as if should be for a motivation. If an individual only expects to stay for a short period of time what about a seven year balloon. The legislature is requiring a thirty year mortgage as a dictation. What if someone buys the house as a gift for the individual. This is not allowed. So someone would have to get a thirty year mortgage and turn around and get the gift. The bill assumes the individual is able to get a thirty year mortgage.

The bill could require the excise tax be paid by the seller and then entered as an amount on the HUD closing papers to be paid back or as a second mortgage subject to payment after a ten year period of time. This could act as part of the down payment for the first mortgage. Getting the mortage insurance premium to be eliminated here would be a stronger goal. The sooner to the 20% ownership the sooner the mortgage insurance premium would go away. The smaller the amount of excess payments for low income homeowners is the motivation which should be in the bill. After the mortgage insurance premium is paid off then the excess amount could be used to pay back the state the amount of the excise tax.

The wording “combined disposable Income” is an ackward word here and other meanings are attributable to “disposable income” and thus making the use of “combined disposable income” inappropriate for what is really being meant to say here. A better choice of wording might be “cumulative household adjusted gross income”. The term disposable income means the amount of income after all expenses have been paid then the amount left over can be used for investments or excess trips or vacations. This in its raw meaning would calculate for low-income individuals to be zero. In this case someone who has an income of $70,000 would qualify as low-income. In another case someone who had $150,000 in income could qualify. Both could be living month to month.

A limitation of $1,000,000 for the amount of the excise tax not paid is low. After the funds exceed one million dollars all of the counties are to be notified that the program has stopped for the fiscal year. This is a start and stop provision. My version of a repayment would allow the program to continue because repayment to the program from prior low-income purchasers would then repay or refinance or sell their homes. Oh. No provision ior restriction of refinancing is included. So after securing a thirty year mortgage I could refinance with a 125% mortgage. If the market does not improve then I could be sitting pretty on the mortgage and states money. This bill is really not thinking like it needs to be. Safeguards were not in place on the first federal bailout and no safeguards are being placed in this bill. Caution is the rule of the day.

A qualifying buying being or not having a prior owned home in the last three years is pretty much a standard timeframe for non-ownership. This qualifier is correct. Bravo. At least something is important. But is this calendar year or 1095 or 1096 day timeframe. Please advise.

The problem with the 80% of median family income as related to family size and reported by theUnited States department of housing and urban development is key for the Seattle/King County market. The statistics for King County are taken from the low income area of Kent and Auburn. Housing and standard of living are lower in these areas. This legislation will not affect anyone living in Seattle due to the cost of housing. Low-income means low-income and Seattle housing prices do not come close to a low-income pocketbook. So the affective legislation here is for urban development and rural development. Too bad the jobs would not follow out in those areas.

Completing a financial education class consistent with standards adopted by the Washington State housing finance commission. This should be a requirement of all borrowers in the current financial market. Drop a lesson about credit card debt in also.

A “Qualifying seller” is a person “primarily engaged in the business of building of rehabilitating residentail housing units”. This sounds like a specialized field. Pre-approval seems to be the order of the day. Who buys the property. Are the properties bought on spec and then rehabilitated or is a set amount of profit included on this “qualifying seller” builders. My first impression was that the low-income buyer could buy a home from anyone. This qualifier of being a “qualified seller” seems to be too restrictive and almost punitive. The qualifying seller would know at what price a house can be sold for prior to the purchase of a rehab and cut corners appropriately. Sub-standard workmanship would be the order of the day. Non-professional craftsmen would be in this industry. Or is this a new cottage industry which is being created. With a limited potential selling price the rehab craftsmanship would be limited. Will the house have to standard insulation or above standard insulation so the heatingcosts could be reduced on a month-to-month operating basis.

If another provision could be added to this bill that would be great also. Currently some types of 1031 exchanges require a third party first to buy the house and then sell is to the buyer. So in affect an excise tax has been paid twice for the single purchasing of a house. This is a common defensive procedure and currently the 1031 exchange deal is doubing up on the costs. If this is not corrected then I could see a 1031 exchange deal going to someone who qualifies under this bill and being able to pocket some extra change but of course only once every three years. But forming a “qualifying seller” may skirt this issue as well. Will have to think about this part of the law and the functionality of the qualifying seller as related to a 1031 exchange deal. If this could be the affect then theoretically no low-income individual would ever be able to buy a house under this bills provisions.

END