With a vote on Jan. 1, 2013, Congress approved the American Taxpayer Relief Act of 2012, which was signed into law by President Barack Obama the following day. The measure maintains many of the tax cuts established by President George W. Bush, but raises income tax rates and establishes caps on tax deductions and credits for higher-income taxpayers.
Some highlights of the Act with greatest potential to impact our industry:
-Retention of the current ordinary income tax rate, but an added hike from 35 percent to 39.6 percent for couples with an annual income of more than $450,000 or individuals with an income of $400,000.
-Expiration of the 2-percent reduction in Social Security payroll tax rates.
-A loss of a portion of itemized deductions and personal exemptions for taxpayers with adjusted gross incomes above $300,000 for married couples and $250,000 for individuals.
-The extension of several business tax breaks and changes, including an accelerated “bonus” depreciation of business investments in new property and equipment.
To dig deeper into how this new legislation may affect the lighting business, we spoke to Dick Upton, President and CEO of the American Lighting Assn. (ALA), to clarify some of the deal’s potential positives and negatives.
Residential Lighting: How will the passage the American Taxpayer Relief Act of 2012 help businesses?
Dick Upton: I look at this as the first step of what’s needed to meet the federal government fiscal challenges, and in my opinion, it was necessary to get this bill passed. First, it helps to get rid of uncertainty regarding tax rates, and most people would say that uncertainty is the worst factor for businesses to be able to make the decisions they need and for industries and their companies to grow and employ people. There are certainly strong arguments about the bill not including spending cuts, but at least the tax structure is set.
RL: What about benefits for our industry specifically?
Upton: A lot of people thought that tax rates would increase on income levels of $250,000 and above, but they were increased on income levels of $400,000 to $450,000 and above, which was positive for our members in my opinion. A number of our members are S corporations and the higher you can get that number, the better. But small business was not done any favors, so that’s unfortunate and it will make a difference.
Some business provisions are also good, in particular the bill provides for a continuation of the accelerated bonus depreciation on business investments.
In talking with folks, a lot of them have breathed a sigh of relief that the rate was unchanged up to $400,000 to $450,000, but there are still changes that are going to impact anyone that makes more than $250,000 a year. Specifically, they will lose a portion of their itemized deductions and personal exemptions.
RL: What are the drawbacks of the fiscal cliff vote and deal?
Upton: Broadly, we’re sending a negative message to the investment market in the U.S. and abroad because the government hasn’t, as yet, met the deficit challenge. Also, when you reduce the amount of dollars that people have to spend, that can mean less expenditure on new homes and remodeling, including lighting products.