Congress Grants One Year Reprieve For Affordable Care Payments
President Obama has suffered a precipitous decline in his approval rating since late April, when that indicator was at 50 percent. Today, Mr. Obama enjoys the approval of only 45 percent of Americans. Rumblings have already been heard that Mr. Obama is a “lame duck” on account of his Syria debacle, and his failed bid to install Lawrence Summers as Fed Chief. All of this at a time when inflation remains at under 2 percent, the unemployment rate continues to decline, the economy improves, the price of crude moderates, most of the world is at peace, and the stock market soars.
Mr. Obama need not lose too much sleep, however, because Americans feel even more disdain toward Congress, with fully 74 percent of Americans disapproving, and 19 percent approving, of the current performance of Congress. There is little doubt Americans are frustrated the inability of the White House to reach a deal with Congress to avoid sequester. Nonetheless, the “threat” of sequester is much less alarming to Americans than it was only a few months ago. In March, 37 percent of Americans approved of the cuts that sequester would herald. As of September 15, 43 percent of Americans now actually favor the cuts. Treasury Secretary Jack Lew, in a speech before the Economic Club of Washington, on September 17, stated:
Because of the policies that we’ve put in place, our deficit has fallen faster than at any point since the demobilization after World War II, and should continue to decline relative to GDP over the 10-year budget forecast.
Although the sheen on his Presidency may have faded with time, Mr. Obama is still considerably more popular at this juncture in his second term than was President Bush. In his quest to assert American dominance on the world stage, Mr. Obama seems to have taken a page from the foreign policy playbook of President Reagan. If Mr. Obama does avoid a debate with Congress on the use of military force against Syria, it may ironically be President Putin that rescued Mr. Obama from that dark fate.
On the domestic and economic front, Mr. Obama now appears more liberal than his mentor and advocate, President Clinton, but decidedly more conservative than the person who now appears to be the likely Democratic standard bearer in 2016, Senator Clinton. Although enormously popular among Democrats, Senator Clinton may be too liberal for a serious electorate, one concerned more about the economy and taxes than about social welfare, foreign policy, and global warming.
Should the Republicans nominate a moderate candidate hailing from north of the Mason-Dixon line, one more in the mold of Lincoln than of Palin — perhaps a northern Republican such as Governor Christie, who could wrest some swing states from the Democrats, while likely returning New Jersey’s 14 electoral votes — the Republicans could conceivably retake the White House in 2016.
* * *
Mr. Obama’s major accomplishment — but at the same time almost his undoing — the Affordable Care Act, is beginning it troubled life in fits and starts. In June, the administration announced it was delaying for one year the commencement of mandatory employer responsibility payment and insurance reporting requirements implemented by the Act. The mandatory requirements for employers and insurers will now begin in January 2015 instead of 2014.
The Affordable Care Act requires companies with over 50 full-time employees to provide health insurance to their employees or pay a tax penalty of $2,000 per employee if the employee receives a premium tax credit for purchasing individual coverage on one of the upcoming health insurance exchanges. Employees that choose not to obtain health insurance will also have to pay a penalty.
In July, the House passed legislation that put the one year employer tax penalty delay into law and provides a similar reprieve with respect to employee obligations. Mr. Boehner (R—Ohio), the Speaker of the House, stated that the delay in the employer mandate was
a clear acknowledgment that the law is unworkable [and that President Obama should recognize] the need to release American families from the mandates of this law as well.
Some provisions of the Act will begin as scheduled in 2014. Beginning next year, most Americans will be required to purchase minimum essential health insurance coverage, or pay a penalty. The penalty begins at $95 or 1 percent of income in 2014; rises to $325 or 2 percent of income in 2015; and plateaus at $695 or 2.5 percent of income in 2016. Taxpayers below the threshold for income tax filing, as well as those whose insurance would exceed 8 percent of income, are exempt.
Tax credits will be available to many taxpayers who purchase health insurance on state and federal “exchanges.” In 2014, individuals earning up to $45,960, and families with household income of up to $94,200 will be eligible for the tax credits on a sliding scale.
* * *
Taxpayers should be keenly aware of the 3.8 percent surtax on net investment income enacted as part of the Affordable Care Act. The tax affects individuals with more than $200,000 in modified adjusted gross income (MAGI), and married couples filing jointly with more than $250,000 of MAGI. Only investment income above the income threshold will be subject to the tax.
The tax covers a broad swath of investment income, including dividends, taxable interest, net capital gains, passive income from investments, net rental income, and the taxable part of non-qualified annuity payments. Investment income does not include tax-exempt interest from municipal bonds or bond funds, or withdrawals from retirement plans such as IRAs, Roth IRAs, 401(k)s or qualified annuities. Although withdrawals from retirement plans are not taxable, taxpayers should be aware that income reported from those withdrawals constitute taxable income. Therefore, they will increase MAGI, possibly over the income threshold, causing other investments to become subject to the 3.8 percent tax.
One strategy taxpayers may employ to minimize the 3.8 percent tax is to avoid reaching the income threshold by reducing MAGI. Items that reduce AGI include itemized deductions (such as charitable donations) and deductible contributions to tax-favored retirement plans. Taxpayers may move a portion of incoming-generating investments (such as high-yield bonds) into tax-sheltered accounts (such as IRAs) to avoid reaching or exceeding the income threshold to which the tax applies.
Taxpayers should also consider the timing of their income. For example, if selling stock in December would trigger capital gain, it might make sense to defer the sale until the following tax year. Another method of avoiding taxable investment income would be to employ a Section 1031 like kind exchange. Through use of a like kind exchange, the taxpayer may exchange property of a “like kind” held productive use in a trade or for investment for other like kind property to be held for use in a trade or business or for investment, without triggering current gain.
* * *
Tax professionals have commented on “poor tax planning” that will cause the heirs James Gandolfini to pay millions in estate tax on the actor’s $70 million estate. Mr. Gandolfini’s will left 30 percent of his estate to each of his two sisters, 20 percent to his daughter, and 20 percent to his second wife. His son inherited a life insurance policy. Since the unlimited marital deduction applies only to the marital bequest, his estate will incur 30 million in combined federal and NYS estate tax.
Those critical of Gandolfini’s planning observe that he could have left more to his second wife in trust, with the balance ultimately passing to his family. However, such a trust would have resulted in millions of dollars being left to accumulate — perhaps for decades — until Gandolfini’s second wife passed away. Gandolfini’s family would have received no benefit from the estate for many years.
Mr. Gandolfini instead chose to benefit those for whom he cared, despite incurring an estate tax obligation. Although there may have been other effective means to reduce his estate tax — and persons with an estate of that size should not forego careful planning — Gandolfini chose to incur the tax rather than defeat his testamentary desires.
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Law Offices of David L. Silverman 
Second Term Blues Visit President Obama
Congress Grants One Year Reprieve For Affordable Care Payments
President Obama has suffered a precipitous decline in his approval rating since late April, when that indicator was at 50 percent. Today, Mr. Obama enjoys the approval of only 45 percent of Americans. Rumblings have already been heard that Mr. Obama is a “lame duck” on account of his Syria debacle, and his failed bid to install Lawrence Summers as Fed Chief. All of this at a time when inflation remains at under 2 percent, the unemployment rate continues to decline, the economy improves, the price of crude moderates, most of the world is at peace, and the stock market soars.
Mr. Obama need not lose too much sleep, however, because Americans feel even more disdain toward Congress, with fully 74 percent of Americans disapproving, and 19 percent approving, of the current performance of Congress. There is little doubt Americans are frustrated the inability of the White House to reach a deal with Congress to avoid sequester. Nonetheless, the “threat” of sequester is much less alarming to Americans than it was only a few months ago. In March, 37 percent of Americans approved of the cuts that sequester would herald. As of September 15, 43 percent of Americans now actually favor the cuts. Treasury Secretary Jack Lew, in a speech before the Economic Club of Washington, on September 17, stated:
Because of the policies that we’ve put in place, our deficit has fallen faster than at any point since the demobilization after World War II, and should continue to decline relative to GDP over the 10-year budget forecast.
Although the sheen on his Presidency may have faded with time, Mr. Obama is still considerably more popular at this juncture in his second term than was President Bush. In his quest to assert American dominance on the world stage, Mr. Obama seems to have taken a page from the foreign policy playbook of President Reagan. If Mr. Obama does avoid a debate with Congress on the use of military force against Syria, it may ironically be President Putin that rescued Mr. Obama from that dark fate.
On the domestic and economic front, Mr. Obama now appears more liberal than his mentor and advocate, President Clinton, but decidedly more conservative than the person who now appears to be the likely Democratic standard bearer in 2016, Senator Clinton. Although enormously popular among Democrats, Senator Clinton may be too liberal for a serious electorate, one concerned more about the economy and taxes than about social welfare, foreign policy, and global warming.
Should the Republicans nominate a moderate candidate hailing from north of the Mason-Dixon line, one more in the mold of Lincoln than of Palin — perhaps a northern Republican such as Governor Christie, who could wrest some swing states from the Democrats, while likely returning New Jersey’s 14 electoral votes — the Republicans could conceivably retake the White House in 2016.
* * *
Mr. Obama’s major accomplishment — but at the same time almost his undoing — the Affordable Care Act, is beginning it troubled life in fits and starts. In June, the administration announced it was delaying for one year the commencement of mandatory employer responsibility payment and insurance reporting requirements implemented by the Act. The mandatory requirements for employers and insurers will now begin in January 2015 instead of 2014.
The Affordable Care Act requires companies with over 50 full-time employees to provide health insurance to their employees or pay a tax penalty of $2,000 per employee if the employee receives a premium tax credit for purchasing individual coverage on one of the upcoming health insurance exchanges. Employees that choose not to obtain health insurance will also have to pay a penalty.
In July, the House passed legislation that put the one year employer tax penalty delay into law and provides a similar reprieve with respect to employee obligations. Mr. Boehner (R—Ohio), the Speaker of the House, stated that the delay in the employer mandate was
a clear acknowledgment that the law is unworkable [and that President Obama should recognize] the need to release American families from the mandates of this law as well.
Some provisions of the Act will begin as scheduled in 2014. Beginning next year, most Americans will be required to purchase minimum essential health insurance coverage, or pay a penalty. The penalty begins at $95 or 1 percent of income in 2014; rises to $325 or 2 percent of income in 2015; and plateaus at $695 or 2.5 percent of income in 2016. Taxpayers below the threshold for income tax filing, as well as those whose insurance would exceed 8 percent of income, are exempt.
Tax credits will be available to many taxpayers who purchase health insurance on state and federal “exchanges.” In 2014, individuals earning up to $45,960, and families with household income of up to $94,200 will be eligible for the tax credits on a sliding scale.
* * *
Taxpayers should be keenly aware of the 3.8 percent surtax on net investment income enacted as part of the Affordable Care Act. The tax affects individuals with more than $200,000 in modified adjusted gross income (MAGI), and married couples filing jointly with more than $250,000 of MAGI. Only investment income above the income threshold will be subject to the tax.
The tax covers a broad swath of investment income, including dividends, taxable interest, net capital gains, passive income from investments, net rental income, and the taxable part of non-qualified annuity payments. Investment income does not include tax-exempt interest from municipal bonds or bond funds, or withdrawals from retirement plans such as IRAs, Roth IRAs, 401(k)s or qualified annuities. Although withdrawals from retirement plans are not taxable, taxpayers should be aware that income reported from those withdrawals constitute taxable income. Therefore, they will increase MAGI, possibly over the income threshold, causing other investments to become subject to the 3.8 percent tax.
One strategy taxpayers may employ to minimize the 3.8 percent tax is to avoid reaching the income threshold by reducing MAGI. Items that reduce AGI include itemized deductions (such as charitable donations) and deductible contributions to tax-favored retirement plans. Taxpayers may move a portion of incoming-generating investments (such as high-yield bonds) into tax-sheltered accounts (such as IRAs) to avoid reaching or exceeding the income threshold to which the tax applies.
Taxpayers should also consider the timing of their income. For example, if selling stock in December would trigger capital gain, it might make sense to defer the sale until the following tax year. Another method of avoiding taxable investment income would be to employ a Section 1031 like kind exchange. Through use of a like kind exchange, the taxpayer may exchange property of a “like kind” held productive use in a trade or for investment for other like kind property to be held for use in a trade or business or for investment, without triggering current gain.
* * *
Tax professionals have commented on “poor tax planning” that will cause the heirs James Gandolfini to pay millions in estate tax on the actor’s $70 million estate. Mr. Gandolfini’s will left 30 percent of his estate to each of his two sisters, 20 percent to his daughter, and 20 percent to his second wife. His son inherited a life insurance policy. Since the unlimited marital deduction applies only to the marital bequest, his estate will incur 30 million in combined federal and NYS estate tax.
Those critical of Gandolfini’s planning observe that he could have left more to his second wife in trust, with the balance ultimately passing to his family. However, such a trust would have resulted in millions of dollars being left to accumulate — perhaps for decades — until Gandolfini’s second wife passed away. Gandolfini’s family would have received no benefit from the estate for many years.
Mr. Gandolfini instead chose to benefit those for whom he cared, despite incurring an estate tax obligation. Although there may have been other effective means to reduce his estate tax — and persons with an estate of that size should not forego careful planning — Gandolfini chose to incur the tax rather than defeat his testamentary desires.
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