Our federal income tax system is senseless, devoid of any singular rational objective (e.g. raising revenue, promoting economic growth, etc.) and infused with complexity and uncertainty brought on by lobbyist influences, politically expedient compromises, social engineering objectives, industry promotion policies and punitive reasoning.
Besides most taxpayers being unable to compute what they owe for previous economic activities, they are also unable to plan for future assessments because of continually changing rules. Professional tax preparers and financial planners are becoming a necessity.
Below is a mind boggling list of scheduled expirations and new or increased taxes for 2011, 2012 and 2013. The list is not definitive. Some items are still being debated in Congress and no doubt there are other automatic changes embedded in the Internal Revenue Code’s 9,000 pages and one million words. Moreover, who knows what the current dysfunctional Congress will come up with in 2012 and the election next year may bring yet more substantial changes in 2013.
Expiring at the end of 2011 will be state sales tax deductions; home energy tax credits (up to $550); mortgage insurance premium deductions and higher education deductions ($4,000). Also slated for expiration is the “temporary” 2 percent payroll tax (Social Security) cut, enacted as a stimulus for recovery and the “temporary patch” on the Alternative Minimum Tax preventing it from hitting some 15 million more taxpayers next year. However, political expediency and posturing for next year’s election may help extend these two for another year. Extension of the payroll tax cut is being hotly debated now.
Expiring at the end of 2012 will be the Bush tax cuts of 2001 and 2003 which were extended for two years in 2010 to aid the economic recovery. If allowed to stand, the expiration will result in a large tax increase across the board. The top income bracket tax will rise to 39.6 percent from 35 percent. Lower income bracket rates will also rise bringing some 10 million taxpayers back to the rolls. The capital gains tax rate will go to 20 percent from 15 and the 15 percent dividend tax will disappear reverting to ordinary income tax rates for dividend receivers. Additionally, estate and gift tax rates and exemptions will revert to 55 percent (from 35 percent) and $1 million (down from $5 million) respectively.
Added to the increased taxes in 2013 coming from the expirations at end 2012, will be an Obamacare law mandated 3.8 percent tax on investment income for taxpayers with $250,000 in joint adjusted gross income ($200K for single filers). There are also changes in charitable deduction allowances, IRA contributions, flexible spending accounts and personal exemptions.
All the Republican party presidential aspirants have put forth tax reform proposals aimed at simplifying the tax code. Generally, President Obama will keep the status quo with its scheduled expirations and additions. Even with a GOP president (50-50 possibility) and majority control of both the Senate and the House in 2013, it will be difficult to have meaningful tax reform unless the Senate is filibuster proof (60 GOP senators).
Since that is highly unlikely, we will continue experiencing taxation without rationalization.
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