Lewis Taub, the tax director at McGladrey in New York, found the tax proposals in President Obama’s State of the Union address to be too general and vague.
He told me Wednesday that the specific loopholes that the president wants to close need to be made more explicit. He expects to see more details once the proposed budget plan is released by the administration.
“He wants to be to a large extent kind to busnesses from a tax point of view because he wants businesses to grow and create jobs,” said Taub. “He spoke about reducing the corporate tax rate, but he’s also talked in very general terms about closing loopholes to lower the corporate tax rate, but he didn’t say which ones.”
Taub speculated that some of the loopholes could involve tax deferrals by multinational corporations into foreign subsidiaries, where the income is taxed but not repatriated. The Obama administration has talked about shutting down deferrals for the last two years as a way to keep U.S. companies from shipping jobs abroad.
“But he also talked about the global economy and being a force around the world,” said Taub. “I’m not sure he wants to discourage investment overseas.”
Another possibility for the loophole closers could be changes in the treatment of inventory. “For the last couple of years the Obama administration’s budgets have included getting rid of LIFO and the lower of cost or market for inventory, where the price of inventory will often go down,” said Taub.
He also was puzzled by Obama’s insistence on raising taxes in another two years on millionaires and billionaires. “If the rates go back up, they’re going to impact joint returns with income of $250,000 or more,” he noted.
Taub is also concerned about Obama’s plans for cuts in discretionary spending, which could affect not only the IRS’s enforcement divisions, but also the budget of the National Taxpayer Advocate service, which often helps individuals and companies facing difficult tax situations who are not being treated well by IRS enforcement personnel.
Taub also wishes the president had mentioned the alternative minimum tax in his speech. Even though last month’s tax cut deal patched the AMT for another two years, the AMT is still hitting many of McGladrey’s upscale clients.
Taub is also skeptical of the president’s ability to simplify the Tax Code before the end of his term and to lower the corporate tax rate in a revenue neutral way. “He talked about the rate being reduced, and he wanted to do it in a tax neutral environment,” said Taub. “Some would pay more and some would pay less, and the government would be in a position to decide. It depends whether you’re losing your loopholes or not.”