They say a true compromise is when everyone walks away a little unhappy. If that’s true, then the American Taxpayer Relief Act passed by Congress and touted as narrowly avoiding a Fiscal Cliff, was the truest of compromises ... resulting in some interesting anomalies.
While no one got everything they wanted, there are some surprising winners in the deal. Business writer Kent Hoover of the Business Journal (Minneapolis-St. Paul) outlined his take on The 5 Winners of the Fiscal Business Awards:
- Small Business. Most small businesses avoided higher taxes when the threshold for increases was set at $450,000 instead of $250,000. Small business owners also should benefit from the $5.12 million estate tax exemption ($10.24 for a married couple), especially with the annual inflation adjustment. Finally, small business owners can immediately expense up to $500,000 in capital expenditures (such as new equipment), instead of having to claim depreciation over time. (Without the deal, the Section 179 annual expensing limit would have fallen to $25,000.)
- Physicians. Popularly known as the "doc fix," Congress blocked a scheduled 26.5 percent decrease in Medicare reimbursements to doctors. (Beware, though, this block is only temporary, and doctors could face a decrease in 2014.)
- Manufacturers and Technology Companies. Many of these companies will take advantage of the research and development tax credit, which provides incentives for companies to do R&D in the U.S.
- Utilities. Congress kept the capital gains and dividends rate at 15 percent for households earning below $450,000 (20 percent for households above that threshold). This is in contrast to taxation at ordinary income tax rates as high as 39.6 percent for wealthy Americans. According to Hoover, "That would have been bad news for companies, notably utilities, that offer dividends in order to attract investors and raise capital. The steady income that dividends provide loses its attractiveness when it's taxed at such a high rate."
- Wind energy, Hollywood and NASCAR. What would any tax code be without special-interests? This deal is no different. The wind energy industry gets a production tax credit for projects that begin construction this year. Hollywood studios get tax breaks for doing their television and film production in the U.S. And NASCAR fans – for some reason Congress saw fit to extend a tax break for "motorsports racing track facilities."
For a look at some of the other industry-specific tax breaks, hop on over to The Wall Street Journal blog, "From NASCAR to rum, the 10 weirdest parts of the ‘fiscal cliff’ bill."
As the old saw goes (and is validated once again), "there are two things you should never watch while they are being made - sausage and tax law."
Reference: Minneapolis-St. Paul Business Journal (January 3, 2013,) "The 5 winners of the Fiscal Cliff Business Awards are ..."