Wisconsin Estate Planning and Tax Law Blog

Wall Street Executive Bonuses: The Firestorm Rages On

I have not had the opportunity to fully research and review all of the material involved with the executive bonuses saga that has engulfed all of us in recent weeks, but I wanted to provide some brief commentary on the topic.  It is relevant to this blog because the most popular ideas currently discussed by the government involve the enactment of an excise tax on executive bonuses received after January 1, 2009.  In fact a Bill was introduced by the Rep. Charles B. Rengel (D-NY) today.  The legislation is referred to as H.R. 1586 and the full text can be found at the House Ways and Means Committee website in pdf here.  The Taxgirl has a great discussion of this bill in her post, Legislation Introduced to Tax Bonuses at 90%.

According to Reuters.com, House votes to recoup bonuses from bailed-out firms, the House overwhelming passed the Bill by a 328-93 split.  An article, House Opens Debate on Bill to Tax Wall Street Bonuses, by Martin Vaughan on CNNMoney.com , discusses some of the partisan debate on the topic including the argument from some Republicans that the Bill is unconstitutional and that more effective alternatives are available.  This article by David Stout on NYTimes.com, House Passes Heavy Tax on Bonuses for Rescued Firms, also provided a nice overview of today's events and the debates that will no doubt linger for at least a bit longer.

As I read through the New York Times article I was struck by a number of things but nothing drew my attention quick as much as the comments made by Rep. Earl Pomeroy (D-ND).  Rep. Pomeroy was as saying, “The people have said ‘no.'  In fact, they said ‘hell no, and give us our money back.’”  I am not intending to take sides in today's great debate, but I am intrigued by Pomeroy's comments for three reasons.  First, I was born and raised in North Dakota so I always get a kick out of seeing the state's long Representative in the news.  Second, until recently I have heard virtually nothing about or from Pomeroy.  Now I see his name in regards to the Wall Street Bonuses topic and he has one of the most popular proposals regarding Federal Estate Tax in H.R. 436: Certain Estate Tax Relief Act of 2009.  Third, I'm completely convinced that Pomeroy's "hell no" clearly eliminates any ambiguity as to his true feelings on the matter.  That direct, no-nonsense delivery is what I attribute to the stereotypical North Dakotan.

One other quote that I thought was noteworthy is from the Bill's sponsor Rep. Rangel.  According to FoxNews.com, Rangel said, "We figured that the local and state governments would take care of the other 10 percent."  So let there be no confusion as to the government's intentions.  While the bonus recipients may face a 90% tax at the Federal level they should also expect the states to gobble up the remaining 10%.  That's one way to recoup the TARP money I guess.

Wisconsin Tax Summary 2009 to 2011

Given the fact that we are approaching the tax deadline and that Governor Doyle's 2009-11 biennial budget includes a few important tax changes, I thought it would be worthwhile to summarize the tax climate in Wisconsin. 

I admittedly did not read the entire budget bill or the budget adjustment bill, but I have reviewed portions of them and I have reviewed various summaries prepared by reputable people.  It is beyond the scope of this blog post to launch into a full scale critique of the budget bill, so instead I have decided to focus on the tax related issues at a relatively high level, including the High Earner Tax Bracket, Wisconsin Capital Gains Tax and Combined Reporting.  I have also provided a link to a post from The Tax Foundation that provides an overview of taxes in Wisconsin.

Wisconsin 2009-11 Budget 

High Earner Tax Bracket

Governor Doyle's budget includes a proposed additional 1% tax rate on individual income in excess of $300,000 for joint filers and $225,000 for individual filers.  The Individual income tax is applied to net income from the following business entities: sole proprietorships, partnerships, tax options (S) corporations and limited liability companies ("LLCs").  This will bring Wisconsin top income tax bracket to 7.75%.

Wisconsin Capital Gains Tax

 The budget aims to reduce the amount capital gains income that is exempt from Wisconsin income taxes.  It is important to remember that Wisconsin applies its normal income tax rate to capital gains.  This differs from the federal government approach, which treats capital gains separately at lower tax rates.  The proposal includes a reduction in the capital gains exemption from 60% to 40%.  The Governor's office has felt it important to point out that the top 5% of earners in the state would receive approximately 78% of the benefit of the capital gains exemption.  The top 1% earners would recieve 57% of the exemption benefit.   Therefore, the cost of lowering the exemption will be borne by the state's top earners.

Combined Reporting

There are currently 20 states that require combined reporting.  The Governor's office projects that 13% of corporations in Wisconsin will be affected by combined reporting.  Combined reporting is a legal requirement that all related corporations that are operated as a single business enterprise, any part of which is being conducted in the state, be treated as a single taxpayer for apportionment purposes.  Governor Doyle also made sure that Wisconsin implemented the single sales factor apportionment formula, which will be used to calculate the percentage of a corporation's combined reporting income is properly apportioned to Wisconsin.  The corporation will then be taxed on that amount.

As mentioned above, I have provided the following link to an article from The Tax Foundation titled, The Facts on Wisconsin's Tax Climate.  This articles provides an overview/summary along with national rankings in different tax cateqories for the periods of the 2008 through 2009. 

Three Certainties in Life?

It appears that I have discovered a third certainty in life during the time I have written (or more appropriately, not written) this blog.  As you most likely surmised from that first sentence the third certainty to date has been my less then stellar updating of this blog.  Well just as I have set out to address the two most notable certainties in life, death and taxes, by focusing my practice on those issues, I have decided to quash the third certainty as well. 

It is nearly two and a half months into the new year and two weeks into the Lenten season, yet here I sit finally getting around to my resolutions.  Amongst other things of course I intend to concentrate more time and energy on the development of informative content for this blog.  As all of you know, time is finite and prioritization is essential. 

My goal is to author a new post at least once a week.  It is safe to assume that some weeks will be "better" than others, but I will do my best to provide information and commentary that I hope will be of value to you.