Baker Hostetler Denver attorney Theodore Z. Gelt was quoted in the article, “The Two-Year Plan: Extension of Bush-Era Tax Cuts Buys Some Time and Keeps Uncertainty at Bay for Now,” which appeared in the February 2011 issue of ColoradoBiz and CoBizMag.com.
According to the article, the Bush-Obama bill came to be the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The bill includes temporary extension through 2012 of the “Bush-era” individual tax rate cuts, which includes (1) rate relief for ordinary income, capital gains and dividends, plus the temporary extension through 2012 of certain other “Bush-era” individual tax relief; (2) the temporary extension through 2012 of certain “Obama-era” individual tax relief enacted in 2009; (3) Alternative Minimum Tax (AMT) relief for 2010 and 2011; (4) temporary estate and gift tax relief through 2012; (5) temporary payroll tax rate reduction for 2011 of two percent on the employee portion of the Social Security tax; (6) the temporary extension of unemployment insurance through 2011; and (7) the temporary extension of other investment incentives and other expired provisions.
“The passage of this bill is extremely significant. We were in 2010 in a kind of no-persons’ land where doing planning was very much curtailed because of the uncertainty,” says Theodore Z. Gelt, “Although this only goes on for two years, it at least gives us two years of certainty, and the Act makes a number of profound changes that really allow us to go forward and plan for our clients. So it has had a dramatic effect.
“The gift tax changed also in a very, very good way,” Gelt adds. “What Congress did this time was to unify that exemption so that there is a $5 million generation gift tax exemption, a $5 million gift tax exemption, and a $5 million estate tax exemption, and they all work in a unified fashion: If I use a dollar of gift tax exemption, that reduces my generation-skipping tax exemption by a dollar, that reduces my estate tax exemption by a dollar. So that now works very, very well. That is the way it should be.”
Overall, Gelt is pleased to have a year’s reduced payroll tax and the extension of unemployment insurance benefits, and believes the package adds up to change that just might spell “hope.” “Now, maybe I’m drinking the Kool-Aid, but I think this may work. I realize it is all theory but I’m pretty enthusiastic about it in its overall scheme,” he says. The tax extensions expire after the next presidential elections. Will they be a subject of earnest debate? “There is some discussion on the table about reevaluating the entire tax system now,” Gelt says. “The last time we did that was with the Tax Reform Act of 1986. We are still living with the Internal Revenue Code of 1986, and it has been amended and amended and amended and amended and it is out of control.”
“I would be in favor of making these changes permanent. Even if you want to make some little tinkering changes with it, if you do that, make them permanent, whatever you do. Let’s get out of this two-year cycle,” Gelt says.