Taxmageddon | NACS – Magazine – Past Issues – 2012 – June 2012
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Taxmageddon

By Carin Nersesian

Get ready for the mother of all hangovers! On December 31, trillions of dollars in tax cuts will expire, trillions more in tax increases will go into effect under the new health-care law and trillions in automatic spending cuts will begin. However, given the amount of spending that’s about to hit our already fragile economy, the path that Congress plans to take on January 1, 2013, is foggy.

To explain why these tax cuts are coming back at the end of the year, we have to get into the weeds a little bit:

Back in 2001 and 2003, President Bush championed significant tax re­ductions for nearly all taxpayers, which included marginal rate reductions, the introduction of a new 10% tax bracket, an expansion of the child tax credit and a variety of other provisions.

The legislation became law thanks to a Senate procedure known as "recon­ciliation," a legislative process that lim­its debate on budget bills to 20 hours. Bush used this procedure in both 2001 and 2003 to his enact tax cuts, but also to satisfy what’s known as the "Byrd Rule," named after the late Senator Robert Byrd (D-WV), which prohibits the use of reconciliation for legislation that would increase the deficit beyond 10 years after the reconciliation mea­sure is enacted. Therefore, the tax cuts were set to "sunset" and automatically expire at the end of 2010. But to keep the tax cuts in place, Congress passed an extension in December 2010 that allowed the tax cuts to remain for an additional two years, hence the expira­tion at the end of this year.

To jog your memory, here are some significant tax-cut provisions that will expire on December 31:

  • The estate tax increases to 55% from the current 35%, and the $5 million ex­emption reduces to $1 million.
  • The 10% tax bracket expires, reverting to 15%.
  • The child tax credit falls from $1,000 to $500. n The tax rate on long-term capital gains increases from 15% to 20%.
  • The tax rate on qualified dividends in­creases from 15% to ordinary wage tax rates.
  • The 25% tax rate increases to 28%.
  • The 28% rate increases to 31%.
  • The 33% rate increases to 36%.
  • The 35% rate increases to 39.6%.

As if anticipating what Congress plans to do about the expiring tax cuts isn’t frightening enough, a Wall Street Journal opinion piece, "The 2013 Fiscal Cliff Could Crush Stocks," adds another alarming scenario to the mix: What about the stock market? The author of the article, Donald Luskin, suggests that the stock market would have to fall 30% to take into account how dividends and capital gains are taxed — unless current law is amended.

For example, let’s consider a stock trading at $100 that pays a $10 dividend every year. Under current law an investor is paying a 15% tax on that dividend, so he gets to keep 85% of it, or $8.50. After-tax yield on that stock is 8.5%. But once the tax expires, the top dividend rate will in­crease to 43.4% from 15% — and the low 15% rate will revert back to the pre-tax-­cut rate of 39.6%. A provision in the new health-care law adds a 3.8% surtax on all forms of investment income, resulting in the 43.4% dividend tax rate.

Therefore, the $8.50 of that dividend will only yield the investor $5.66 after paying the 43.4% dividend tax. Also, the same logic could apply to capital gains tax rates, in which the top capital gains rates will increase from 15% to 23.8% at the end of the year.

If your head isn’t spinning by now, here’s a few more X factors. Combined with mandatory spending cuts put in place last summer, we’ll enter a lame duck Congress following the November elections, where more problems than solutions will be offered on contentious issues such as tax cuts. Mix this with our current economic state, it becomes clear to see why Beltway insiders are us­ing terms such as "fiscal cliff" and "tax­mageddon" to describe the potential pit­falls we could face on December 31. It’s going to be a bumpy ride, folks.

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NACS Leads Fight for Fuels Retailers
By John Eichberger

Many groups are interested in saddling retailers with blame for everything from high prices to economic stagnation. NACS has stepped up to set the record straight. Here’s what we’ve been up to since January:

  • NACS released the 11th Annual NACS Retail Fuels Report explaining how the market works, who owns and operates convenience stores and what contributes to the retail price of gasoline. In addition, we released the NACS Consumer Fuels Report (see "What Fuels Consumer Behavior?" in the March NACS Magazine), a survey that details how sensitive consumers are to retail fuel prices, who they blame for high prices, their opinions about fuel retailers and about convenience stores. This report was distributed to more than 200 reporters who tackle fuels issues in various media outlets.
  • Leveraging the Retail Fuels Report and Consumer Fuels Report, NACS delivered presentations about the retail fuels market to the Conference of Western Attorneys General, the National Association of Attorneys General, the National Conference of State Legislators, staff working in the House of Representatives, staff working in the Senate and motor fuels reporters.
  • NACS also proactively communicated the truth about the retail fuels market to the general media, conducting more than 150 interviews with news outlets throughout the nation, including numerous on air interviews on radio stations and television programs.
  • When congressional interest in fuel prices began to peak, NACS worked to ensure that Congress understood what was happening at retail, delivering testimony to the House Energy and Commerce Subcommittee on Energy and the Environment during a hearing on gas prices.
  • NACS coordinated a diverse coalition in support of legislation in both the U.S. House and Senate (H.R. 4345 and S. 2264, respectively) that would remove some of the legal impediments and unnecessary costs associated with bringing new fuels to market. On April 19, NACS testified before the U.S. House Energy and Commerce Subcommittee on Environment and the Economy in support of the legislation.
  • NACS published a report in April, "The Future of Fuels: An Analysis of Future Energy Trends and Potential Retail Market Opportunities," that raises the level of discussion concerning the future of fuels. This report so far has been delivered to nearly 250 congressional offices with a call on Congress to conduct a comprehensive review of regulations affecting the fuels and vehicles industries to identify areas of conflict and to begin the process of developing a long-term national fuels policy.

In addition, we have been active in the regulatory arena with the Environmental Protection Agency, the National Conference on Weights and Measures and others who have taken an interest in your business.

For questions about our work on retail fuels, contact NACS Vice President of Government Relations John Eichberger at jeichberger@nacsonline.com or (703) 518-4247.

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Raiding the Piggy Bank
Congress swipes LUST Trust Fund monies to balance the books.

The process of legislation from inception to enactment is, oddly enough, a lot like making sausage. Understandably, most people don’t want to see the process for themselves, but they are interested in the final product.

That said, efforts to reauthorize legislation that supports our nation’s highway infrastructure has been like watching sausage being made, and the end result will have a devastating impact on the Leaking Underground Storage Tank (LUST) Trust Fund.

The Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2005: A Legacy for Users (SAFETEA­LU) — after being extended nine times since 2005 — is set to expire this month on June 30. Months after the Senate began working on its two-year, $109­billion highway bill, rather than at­tempting to fix the revenue problems driving the Highway Trust Fund, law­makers turned to a series of one-shot, one-time-only revenue transfers. Herein lies the fate of the LUST Trust Fund.

Brief History
In 1986, Congress established the LUST program, authorizing the collection of one-tenth of a penny per gallon of gaso­line and diesel fuel sold. The funds were used to clean up contaminated sites where no responsible party could be identified.

Then in 2005, Congress expanded the LUST program and its funds by:

  • Establishing requirements that state tank programs must inspect every regu­lated tank at least once every three years,
  • Ensuring tank operators are properly trained,
  • Making sure noncompliant tanks are shut down and relevant information is made public, and
  • Allowing states to use LUST Trust Fund resources to help pay for these new requirements.

Where We Are Today
Since the program’s inception, the Fund has accumulated roughly $3.2 billion, collects approximately $194 million in fees and earns $127 million in interest. However, Congress only appropriates around $112 million per year.

Congress has steadily used the LUST Trust Fund to balance the books — instead of protecting the health and water security of their constitu­ents. Despite decades of accumulat­ing funds from tank owners, we’re left with a backlog of 88,000 sites waiting to be cleaned up and inconsistent en­forcement of requirements that pre­vent future releases.

The Senate passed its highway reau­thorization bill earlier this year, which alarmingly raids $3 billion from the LUST Trust Fund and diverts future revenues collected for that program to offset the Highway Trust Fund.

With conference negotiations on both the House and Senate versions of the highway reauthorization bill under­way, NACS is making sure that members of Congress understand how raiding this important environmental protec­tion program is unacceptable.

We need you to ramp up your grass-roots efforts and contact your members of Congress and tell them to reject any efforts that divert resources from the LUST Trust Fund for non-tank related purposes. Go to nacsonline.com/grass­roots and click on "My Legislators" to find the contact information for your members of Congress.

Congress has one chance to make things right — there are no do-overs this time.

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Union Ambush Averted
Unions almost had the upper hand in what’s been dubbed the Ambush Election Rule, which sought to speed up the election process within a workplace to become — you guessed it — unionized.

In December 2011, the National Labor Relations Board (NLRB) spearheaded a new rule that would have substantially reduced the period of time between a representation petition and a union election. An ambush election could have happened so quickly that employers would have had very little to no time to communicate effectively with their employees.

The Coalition for a Democratic Workplace (CDW), which NACS is a member of, challenged the new rule, which took effect on

April 30. On May 14, the U.S. District Court for the District of Columbia overturned NLRB’s ambush election attempt. This ruling is good news for employers, but the coalition is not expecting the NLRB to go down without another fight. Stay tuned.

Contact NACS Director of Government Relations Carin Nersesian at cnersesian@nacsonline.com or (703) 518-4210 with questions about this issue.

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One Voice With Jim Tudor
We have a motto at the Georgia Association of Convenience Stores (GACS): "Democracy Is not a Spectator

Sport." There is no question that the political profile of both our industry and the products and services we provide has been raised over the years, making it critical for retailers to actively put a "face" on our industry so that our elected officials clearly understand how their actions impact real people in their communities. The fact is that political involvement isn’t free — it’s a cost of doing business in today’s regulatory environment.

There are many ways to engage in grassroots advocacy efforts. First and foremost, do not wait until you have an "ask" to begin a relationship with your senator or representative. The absolute best time with elected officials is when you are networking with them in your district before you ask for their support. It’s also critical that you follow up with them after a vote, acknowledging their vote and expressing either your appreciation or disappointment. This goes miles towards demonstrating that you are a cut above the average constituent.

And if you ever wondered whether your emails and letters make a difference, let me share with you some evidence that your efforts are working. During a grassroots push to stop rest stop commercialization, it was obvious that Senate staffers were concerned about responding to an onslaught of more than 200 emails from GACS members. When asked how legislators were leaning on the issue, and staff responded: "Please tell them we are with you and stop sending us all these messages."

If you want to get involved but aren’t sure how, your state and national associations make it very simple. Both NACS and GACS offer easy-to-use grassroots tools that allow you to make your voice heard. Many retailers are concerned about having to know all of the details of an issue, who to send it to and how to craft a message. In less than two minutes these systems allow you to deliver your message to state and federal officials with a simple click of your mouse. It’s an easy first step and more importantly, it works. All it takes is your decision to get involved and make a difference.

Jim Tudor
President
Georgia Association of Convenience Stores