Despite what Democratic Senator Ron Wyden of Oregon calls “a rotting economic carcass that’s infected with chronic diseases like loopholes and inefficiencies,” federal tax reform is unlikely to occur until after the U.S. presidential election in 2016. Deadlock between the political parties is likely to continue, especially in light of Republicans gaining control of both houses of government during the November 2014 elections.
However, despite the inaction of Congress, the fact remains that more than 50 tax breaks expired at the end of 2013 – and many Americans are unaware of the changes, even though their tax bill may incur a significant increase. If you are among those earners who may be affected, it is important to recognize these changes and to take action before the end of the year to keep more of your gross earnings.
Tax Law Changes That May Affect You in 2015
High-earning taxpayers will be liable for higher taxes due to laws passed in 2013 that include the following:
1. New top tax bracket of 39.6% for incomes greater than $400,000 for individuals and $450,000 for joint filers
2. Medicare surtax charge of 0.9% for individuals who earn more than $200,000, or $250,000 for joint filers
3. Net Investment Income Taxof 3.8% on the lesser of your net investment income or the excess of your modified adjusted gross income (MAGI) over $200,000 for individuals, or $250,000 filing jointly
4. Limitations on itemized deductions and personal exemptions for those with incomes of $254,200 or more ($305,050 for joint filers)
Additional changes that may increase your taxes include the following:
The tensions between Wall Street and the Federal Government and the cries to rein in bankers and level the playing field for the average worker existed long before ‘Flash Boys.’
In response, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 with the hope that it might bring about much-needed reform of the financial services industry. Predictably, the industry resisted any attempt to curb its immense power, flooding the halls of Congress with lobbyists and the campaign coffers of legislators willing to roll back parts of the 2010 bill. As a result, many regulations are still not in place, and the Securities and Exchange Commission and CFTC budgets have been slashed, limiting their ability to investigate wrongdoing.
What Is Responsible Regulation?
Critics of Dodd-Frank assert that it does not address institutions deemed too big to fail since it explicitly permits bailouts via a “resolution authority” provision to be initiated at the discretion of government authorities. Many people – including Sandy Weill, John Reed, and Richard Parsons (all former Citigroup chairmen) – argue that banks are, in fact, too big. Federal Reserve Governors Tarullo, Fisher, Stein, Plosser, and Bullard argue that the only solution is to break up the mega-banks.
However, others would simply require that banks raise their capital ratio to 10% or more of their assets, and require more cash reserves. They note that during the Great Depression, large New York banks maintained more than 15% of their assets in equity and cash reserves in excess of 25% – and none of these banks failed.
Cam Fine, CEO of the 7,000-member-strong Independent Community Bankers of America, bluntly claims, “Too-big-to-fail firms should be downsized and split up.” Rather than reducing the risk that mega-banks pose, the Dodd-Frank Act has aggrandized the advantage of large banks over smaller competitors, imposing such a burden on the latter that “they will simply have to sell out to larger institutions that have the staff to deal with the massive volume of new reports and rules,” according to American Bankers Association President Ed Yingling.
The provisions of Dodd-Frank extend well beyond bankers to other segments of the financial industry. While unpopular, many players have reluctantly prepared for its new rules and discovered that the situation is not quite as dire as initially projected. According to Wulf Kaal, a University of St. Thomas professor who surveyed 94 private equity, venture capital, real estate, and hedge fund advisers, 7 of 10 say that the new laws haven’t affected their investors’ rates of return, nor do they plan to alter their investment style. In other words, the regulations have been diluted and defanged to the extent that no real change is required.
For almost 200 years, America has enjoyed global leadership in science, commerce, and government. As a consequence, the United States has become one of history’s greatest economic powers, dominating the 19th and 20th centuries. The ability of Americans to “think outside the box,” their courage to challenge conventional thinking, and their confidence to persevere despite numerous setbacks has inspired generations and continues to change lives around the globe.
Leaders understand that greatness is more than building personal wealth or power, but creating products and services that improve the lives of individuals and the overall human condition. But as trade barriers between countries have fallen, leaders are faced with new challenges, and America’s preeminent status as the world’s dominant economy has been and will continue to be challenged as never before.
21st Century Challenges for America’s Businesses
There are a variety of factors that may negatively affect the competitiveness of American firms in the coming years, including three identified in McKinsey Quarterly:
1. Dynamism in Emerging Markets
The world has become “flatter” with the disappearance of natural and artificial borders that protected local and regional markets. As a consequence, markets are worldwide and more competitive, as economist and “New York Times” columnist Thomas L. Friedman predicted in 2005.
Within the next decade, China will be home to more large companies than either the United States or Europe, with almost one-half of the companies on Fortune’s Global 500 list of major international players hailing from emerging markets – a 900% increase in 20 years. The emergence of nearly two billion consumers in the emerging markets will create markets in their home countries to support aggressive international growth.
2. Technology and Connectivity
Moore’s Law – a computer term professing that overall processing power doubles every two years – is alive and well, and may prove to be conservative. According to SingularityHUB, many computer scientists project that the world’s first “exaflop” computer will be available before the end of this decade. An exaflop computer will perform a quintillion operations a second – the inputting power equal to the human brain.
As a consequence of the anticipated quantum leap in computer power, businesses can start and gain scale with stunning speed while using little capital, value will rapidly shift between country and industry sectors to reflect the constant changes, and entrepreneurs and startups will have new advantages over large established businesses. The life cycle of companies is already shortening and decision making has never had to be so rapid fire.
Imagine having major surgery at an internationally accredited hospital, performed by a board-certified surgeon, and then recovering with your spouse in a four-star hotel on the beach in Costa Rica. Add daily nurse and physical therapist visits to the mix, and all for less than the cost of the surgery, hospital stay, and rehabilitation in your home city. This is medical tourismand many Americans have recently discovered it.
According to the website Patients Beyond Borders, an estimated 1.2 million Americans will travel overseas in 2014 for medical and dental services. It’s also estimated that, globally, six million people will travel across international borders for less expensive (though comparable) care to save money or avoid long waits for treatment. According to the Huffington Post, British citizens are headed “to Switzerland for things like face lifts, Botox and liposuction; the Czech Republic for boob jobs, lip fillers, and nose jobs; and Thailand for teeth whitening.” The Economic Times reports that the Indian medical tourism business is growing 30% annually, with 3.2 million visitors projected to spend $2 billion U.S. in 2015.
Major health insurers such as Aetna, UnitedHealth, Humana, and WellPoint are experimenting with cross-border plans, according to the New Republic. Blue Cross Blue Shield of South Carolina has contracted with foreign providers for its high-deductible, low-premium plans. While Medicare does not currently cover healthcare costs overseas, the nonpartisan group Center for Medicare Portability predicts that it’s just a matter of timeretired Americans living overseas who paid Medicare premiums during their working years are currently denied medical care or must pay out-of-pocket. In addition, there would be substantial savings in the Medicare programs since comparable services overseas cost around 60% to 70% of U.S. prices.
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