ICBA - Advocacy - Comprehensive Federal Tax Options Study - Top 10 Fixes

Comprehensive Federal Tax Options Study - Top 10 Fixes

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Independent Community Bankers of America
New Research Study Prompts
Top 10 Tax Fixes

As our nation debates tax policy options to foster economic growth and job opportunities, the Independent Community Bankers of America is proud to release its new study on tax relief and simplification options. This study reflects a year-long research effort by the community banking sector nationwide to identify the policy changes that ICBA believes, if enacted, would boost economic growth by enhancing the viability of community-based financial institutions, their individual and small business customers, and improve the ability for all Americans to better save and invest.

Here are the ICBA's TOP TEN policy changes taken from the detailed menu of options presented in its new study, "Community Bank Tax Relief and Simplification Options."

  1. Allow new Universal FREEDOM Savings Account. The current array of complex, restrictive, and fragmented savings plans prevents Americans from having a simple and flexible account to meet their savings needs. It's no secret that millions of Americans simply cannot qualify for today's tax-advantaged savings plans because of complex restrictions. The ICBA proposes a new Universal FREEDOM Savings Account to boost savings through an easy-to-understand, flexible account that is available to all for first-time home purchase, retirement needs, education expenses, economic hardship, donation to charitable organizations, occupational costs, or medical expenses. Account qualifying contributions up to $15,000 would be post-tax and can be withdrawn tax-free.

  2. Improve Current Retirement and Education Provisions. The Economic Growth & Tax Relief Reconciliation Act of 2001 did expand retirement and education savings accounts, unfortunately, not all individuals qualify to use these accounts and the enacted benefits all expire in year 2010 - jeopardizing individuals' long-term savings plans. ICBA recommends making permanent these enhanced savings incentives and increasing the contribution limitations on Coverdell Education Savings Accounts to match the contribution limits of the popular Section 529 college savings plans.

  3. Provide Individual Interest and Dividend Exclusion. To improve individuals' ability to save and invest without being hit with punitive double taxation, ICBA recommends allowing the first $600 ($1,200) for joint return) be excluded from taxable income.

  4. Permanently Repeal Estate Tax and Increase Fair Market Value Basis. Repeal of estate tax is important to the ongoing viability of our nation's small businesses. Increasing the fair market value allowance at date-of death would dramatically simplify the difficulty of determining the cost basis of assets included in an estate.

  5. Allow Long-Term Deposits Capital Gains Tax Treatment. Individuals that delay their consumption to save with long-term savings deposits in products like Certificates of Deposits (CDs) merit like treatment to long-term equity holders that benefit from lower capital gains tax treatment. Providing capital gains tax treatment for interest earned on traditional savings accounts would give individuals greater savings options, and support local deposits needed to meet local lending needs.

  6. Liberalize Punitive S Corporation Rules. One proven way to help reducing the punitive double taxation on corporate income is to expand restrictive Subchapter S Corporation rules. This would allow more of our nations' small businesses to use this simple structure to pay one level of tax at the individual shareholder level.

  7. Increase Small Business Expensing. Today more that ever our nation's community banks and all businesses have to keep competitive with the latest equipment, computers, and software. ICBA recommends increasing and indexing the current $25,000 immediate expensing available through Section 179 of the tax code to $75,000 and making computer software eligible as well.

  8. Boost Small Business Lending Opportunities. 2003 marks the 50th year the Small Business Administration's has helped meet the lending need of millions of job-creating small businesses. Community banks are a critical delivery system for SBA small business lending programs nationwide. ICBA recommends excluding from taxation 50 percent of SBA loan interest income for loans of $250,000 or less to foster the availability of much-needed small business lending resources.

  9. Create National Limited Liability Company (LLC) Bank Charter. Small, closely held and family-owned community banks are not unlike many other small businesses. Unfortunately, community banks are severely restricted in their ability to use business structures widely used by other small businesses to prevent punitive double taxation -- such as limited liability partnerships and limited liability corporations. ICBA recommends a Limited Liability Corporation charter be made available to preserve the ongoing viability of community banks to serve the credit needs of their communities.

  10. Boost Cost-effective Local Government Funding Options. Today, numerous state and local governments face severe budget resource problems. All the more reason local governments need a cost-efficient means to fund their project costs. ICBA recommends increasing the current $10 million cap limitation to $30 million to qualify as bank qualified muni-bond obligations.
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