News for the Hospitality Executive
Taxes and the Deficit
Recent Federal Legislation Impacting
By Kevin F Reilly, May 2011
2010 was quite a year for health care reform, tax legislation, change in control of the House and the rise of the tea party. Oh yes, it was a very political and partisan year. While it may have gone down to the wire for the extension of the Bush tax cuts, taxes were addressed all throughout the year. Early in the year, Democrats were still trying to reduce unemployment and the HIRE Act of 2010 was enacted in March. It provided new incentives to encourage the hiring of new workers. With the economy beginning to recover last year (although very slowly), many hotels were able to take advantage of some of these incentives. However, many businesses felt that any advantage received from that act was more than offset by the Patient Protection and Affordable Care Act. The act was much more than a tax bill, but several tax provisions were included. With the decisions of several courts and the Republicans in control of the House, it is unclear what will become of the legislation, but businesses must begin to address the provisions of the bill now as many aspects are already effective.
One provision that received immediate attention was the requirement that businesses issue 1099s to all vendors with which they deal, for goods as well as services. This provision was derided as soon as people focused on it. Legislation was introduced several times during 2010 to repeal the bill and, while no one liked it, the legislation never passed. In February, the bill finally passed the Senate and, unfortunately, was added to a larger bill. While the House did not object to the larger bill, it wanted the stand-alone repeal bill so it could trumpet its success. It is expected that by the time this article appears, the legislation will have been passed and the requirement repealed. Failure to pass the repeal would have placed an enormous burden on business, particularly small businesses and provided little additional help to the Internal Revenue Service in collecting additional revenue.
Even with the elections coming up, or maybe because of it, Congress passed additional legislation in September, the Small Business Jobs Act of 2010, which retroactively extended many provisions that had expired at the end of 2009. One of the key provisions for businesses is the renewal of the increased expensing limitations ($500,000 limit with $2 million phase-out threshold) and the qualified real property expensing ($250,000 limit). These items are critical if business is going to lead the recovery.
But the best was kept to last.............and the politics surrounding it were fierce. As a matter of fact, it was not until the lame duck session after the Democrat's losses in November, that Congress even was able to address the critical issues surrounding the expiration of the Bush tax cuts. Since Congress often states that it needs to pay for any tax cuts, one method used is to have the provisions expire at some certain date in the future even though the expectation is something will be done at that point. It clearly is smoke and mirrors but has religiously been a ploy used by Democrats and Republicans over the years. However, seldom have the stakes been as high.
It was not until late December that a bipartisan agreement was reached on a tax bill. President Obama allowed the tax cuts to continue for all taxpayers, including the wealthy, and the Republicans agreed to an extension of the unemployment insurance as well as additional economic stimulus measures. However, in a clear indication that the battle is not over, the provisions were extended for another two years, which will put the debate square in the middle of another Presidential election cycle. At least for now, we have some answers. Among the items passed that will impact business are:
Chart One shows the problem. Too much of our budget is in entitlements, defense spending and interest on the debt. Without an increase in revenue, or the political courage to address entitlements, the problem will grow exponentially. Chart Two shows the national debt. If not already done, the debt will need to be raised shortly. Already, this has people lining up to require substantial cuts (in the current fiscal year) before they will vote for the increase.
While we have just finished the 2010 elections, the election cycle is continuous. Both political parties already are gearing up for the 2012 elections. As a result it is likely that, while some reductions will be made, many of the hard decisions will not and the buck will be passed to the next Congress or even the next generation.
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Deficits and Policy; Summarizing Recent Federal Legislation Impacting
Hotels / Kevin F Reilly / May 2010
|Analyzing the Tax Implications of the Stimulus Legislation; Tax Breaks Not Large, Few Will Benefit Hospitality Industry / Kevin F Reilly / May 2009|
|The Checks in the Mail; Congressional Action Impacting the Lodging Industry / Kevin F. Reilly / May 2008|