Under the Budget Control Act of 2011, federal income tax rate reductions that went into effect when George W. Bush was president and were extended by President Obama will expire, and there will also be "sequestration," leading to large federal budget cuts, beginning in January, unless Congress and the president negotiate a new compromise. While "falling off" the Fiscal Cliff would certainly lower the deficit, many economists have said that the combined tax increases and spending cuts, amidst a weak economic recovery, would likely push the U.S. economy back into recession.
Without a compromise in Washington, the top federal income tax rate will increase to 39.6% from its current 35%, and investors will see the end of the 15% federal income tax rate cap on qualified dividend income. Republican leaders in Congress have indicated some willingness to compromise with President Obama over tax increases, but lean toward eliminating tax deductions and loopholes, rather than raising graduated tax rates.
"We shouldn't just kick this down the road," says Philip Cohen, a professor in the Legal Studies and Taxation Department of Pace University's Lubin School of Business, "but my suggestion is not to put a $50,000 cap on deductions," which had been suggested by Republican nominee Mitt Romney during the presidential campaign. Cohen did say that he didn't object to a cap on deductions "at a much higher level."
Cohen previously wrote in an opinion piece in The Hill that "such a cap would unfairly affect upper-middle-class taxpayers in states with high tax rates like New York and California, who are subject to the tax through no choice of their own other than where they live and work. Furthermore, the much-criticized Alternative Minimum Tax already serves to limit many deductions, including state income taxes on many middle-class taxpayers.""My suggestion would be to have some increase in statutory rates, to around 37%," says Cohen, "and that it not be imposed at a $250,000 income level, but at a higher level of $750,000 to $1 million." Cohen also suggests reducing the limit on mortgage interest deductions from taxable income, from the current indebtedness limit of $1 million "down to $500,000, phasing it in for those who have already bought homes in reliance of the old law."
A Dimmer Outlook for Zions.
While updating the company's twelve month outlook at the FBR Investors Conference in New York, Zions CFO Doyle Arnold said that the company could report other-than-temporary-impairment, or OTTI, charges of "around $20 million pretax" during the fourth quarter, on "that rather large CDO portfolio that we have," according to a transcript provided by Thomson Reuters.