Daily Tax Update - October 12, 2012: Biden, Ryan Square Off in Vice Presidential Debate

BIDEN, RYAN SQUARE OFF IN VICE PRESIDENTIAL DEBATE:  Last night, Vice President Joe Biden and Republican Vice Presidential nominee Paul Ryan met in the only vice presidential debate.  The debate time was divided between domestic and foreign policy issues.

  • The moderator, Martha Raddatz, posed a question on the issue of taxes, "If your ticket is elected, who will pay more in taxes? Who will pay less?" 
  • Biden responded, "The middle class will pay less, and people making a million dollars or more will begin to contribute slightly more. Let me give you one concrete example: the continuation of the Bush tax cuts. We're arguing that the Bush tax cuts for the wealthy should be allowed to expire. Of the Bush tax cuts for the wealthy, 800 million — billion dollars of that goes to people making a minimum of a million dollars. We see no justification in these economic times for those — and they're patriotic Americans. They're — they're not asking for this continued tax cut; they're not suggesting it; but my friends are insisting on it. A hundred and twenty thousand families, by continuing that tax cut, will get an additional $500 billion in tax relief in the next 10 years, and their income is an average of $8 million. We want to extend permanently the middle-class tax cut for — permanently from the Bush middle-class tax cut. These guys won't allow us to." Biden added, "We say let's have a vote. Let's have a vote on the middle-class tax cut, and let's have a vote on the upper tax cut. Let's go ahead and vote on it. They're saying no. They're holding hostage the middle-class tax cut to the super wealthy. And on top of that, they got another tax cut coming that's $5 trillion that all of the studies point out will, in fact, give another $250 million dollar — yeah, $250,000 a year to those 120,000 families and raise taxes for people who are middle-income with a child by $2,000 a year. This is unconscionable. There is no need for this. The middle class got knocked on their heels. The Great Recession crushed them. They need some help now. The last people who need help are 120,000 families for another — another $500 billion tax cut over the next 10 years."
  • Ryan responded, "Our entire premise of these tax reform plans is to grow the economy and create jobs. It's a plan that's estimated to create 7 million jobs. Now, we think that government taking 28% of a family and business' income is enough. President Obama thinks that the government ought to be able to take as much as 44.8% of a small business' income. Look, if you taxed every person in successful small business making over $250,000 at a hundred percent, it'd only run the government for 98 days. If everybody who paid income taxes last year, including successful small businesses, doubled their income taxes this year, we'd still have a $300 billion deficit. You see, there aren't enough rich people and small businesses to tax to pay for all their spending. And so the next time you hear them say, don't worry about it, we'll get a few wealthy people to pay their fair share, watch out, middle class. The tax bill is coming to you."  Ryan continued, "That's why we're saying we need fundamental tax reform. Let's take a look at it this way: 8-out-of-10 businesses, they file their taxes as individuals, not as corporations. And where I come from, overseas, which is Lake Superior — the Canadians — they drop their tax rates to 15%. The average tax rate on businesses in the industrialized world is 25%, and the president wants the top effective tax rate on successful small businesses to go above 40%. Two-thirds of our jobs come from small businesses. This one tax would actually tax about 53% of small-business income. It's expected that'd cost us 710,000 jobs. And you know what? It doesn't even pay for 10% of their proposed deficit spending increases. What we are saying is lower tax rates across the board and close loopholes, primarily to the higher-income people. We have three bottom lines: Don't raise the deficit, don't raise taxes on the middle class and don't lower the share of income that is borne by the high-income earners."
  • The moderator asked Ryan, "You have refused yet again to offer specifics on how you pay for that 20% across-the-board tax cut. Do you actually have the specifics, or are you still working on it, and that's why you won't tell voters?"
  • Ryan responded, "Look — look at what Mitt — look at what Ronald Reagan and Tip O'Neill did. They worked together out of a framework to lower tax rates and broaden the base, and they worked together to fix that. What we're saying is here's our framework: Lower tax rates 20% — we raise about $1.2 trillion through income taxes. We forgo about 1.1 trillion (dollars) in loopholes and deductions. And so what we're saying is deny those loopholes and deductions to higher- income taxpayers so that more of their income is taxed, which has a broader base of taxation — so we can lower tax rates across the board.  Ryan added, "Six studies have guaranteed — six studies have verified that this math adds up. . . "
  • Biden added, "First of all, I was there when Ronald Reagan tax breaks — I mean, he gave specifics of what he was going to cut, no — number one, in terms of tax expenditures. Number two, 97% of the small businesses of America pay less — make less than $250,000. Let me tell you who some of those other small businesses are: hedge funds that make $800 million a year. That — that's what they count as small business because they're passthrough. . . . This is — and they're going to talk — I mean, you think these guys are going to go out there and cut those loopholes? The loophole — the biggest loophole they take advantage of is the carried interest loophole and — and capital gains loophole. They exempt that."  Biden continued, "Now, there's not enough — the reason why the AEI study, the American Enterprise Institute study, the Tax Policy Center study, the reason they all say it's going to — taxes will go up on the middle class, the only way you can find $5 trillion in loopholes is cut the mortgage deduction for middle-class people, cut the health care deduction for middle-class people, take away their ability to get a tax break to send their kids to college."
  • The debate can be accessed here.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE: 
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE 
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country.  The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court.  The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.