Fiscal Cliff Could Have Severe Consequences for Independent Auto Repairers
As AutoInc. goes to press, congressional leaders and the White House continue negotiations to avoid the Fiscal Cliff, tax increases and budget sequestration, set to kick in after Dec. 31, 2012. Negotiations to date have produced little progress in an effort to avoid significant consequences for individuals and the small business community. Several tax extenders supported by the Automotive Service Association in previous years are set to expire as part of this Fiscal Cliff package.
There are a few options available to congressional leaders and the White House as we creep closer to the New Year’s Eve 2012 deadline. First, a big picture, multi-trillion dollar package advocated by the U.S. Senate’s Gang of Eight, the Simpson-Bowles Committee and others, is a preferred option eliminating the need to return in 2013 and repeat this process. The second option is a “partial deal,” where some of the tax extenders are addressed with a smaller package of budget cuts pushing major decisions to later in 2013.
Let’s take a look at some of the issues that could impact independent repairers as well as other small businesses if the Fiscal Cliff is not averted prior to the end of 2012:
In 2013, the estate tax exemption will move from $5 million per person to $1 million per person. The maximum tax rate will increase from 35 percent to 55 percent. The provision allowing a surviving spouse to use his/her deceased spouse’s exemption will expire at the end of 2012.
Capital Gains Taxes
The top capital gains tax rate will increase from 15 percent to 20 percent in 2013. The capital gains tax rate for those in the lower income tax brackets will increase from 0 percent to 15 percent in 2013.
Individual Income Tax Rates
Individual income tax rate brackets currently range from 10 percent to 35 percent. In 2013, without an agreement between Congress and the White House, the brackets will range from 15 percent to 39.6 percent.
Section 179 Small Business Expensing
The maximum amount that a small business can immediately expense when purchasing assets instead of depreciating them over time will be $25,000 in 2013 versus $125,000. The maximum amount was $500,000 in 2011.
The additional 50 percent bonus depreciation for the purchase of new capital assets will also expire at the end of 2012.
Deduction for Self-Employed Health Insurance Against Self-Employed Taxes
There is a permanent 100 percent deduction for the cost of health insurance for self-employed people and their families against their income tax. The temporary provision that allows the self-employed to also take a deduction against their self-employed taxes expired at the end of 2011.
The Patient Protection and Affordable Care Act created new Medicare taxes, 3.8 percent, that will be applied to unearned income of higher income taxÂpayers in 2013. In addition, an additional 0.9 percent Medicare tax will be imposed on wages and self-employment income above established thresholds for high-income individuals.
What must not be ignored are large spending cuts as part of sequestration piece of the Fiscal Cliff. National defense will take a disproportionate share of the budget cuts, which could directly impact some communities that are dependent on local military bases or other military installations. In addition, there is concern that these federal budget reductions will also trigger additional unemployment increases in an economy that already includes high numbers of unemployed.
As I write this, the speaker of the House and the president are working to avoid the Fiscal Cliff. A number of congressional leaders are skeptical as to a big picture deal being obtained prior to the end of the year. An agreement is critical to avoid a hit to a small business economy still struggling to move forward.
Editor’s note: AutoInc. will be arriving at member shops the first week in January. By the time you’re reading this, we’ll know whether Congress and the president avoided the Fiscal Cliff. Regardless of whether the Fiscal Cliff was avoided, we thought Redding’s legislative report would be of special interest to you. As always, Redding looks at issues that could impact you.
Bob Redding is ASA’s Washington, D.C., representative. He is a member of several federal and state advisory committees involved in the automotive industry.
Copyright (c) 1996-2012. Automotive Service AssociationŽ. All rights reserved.