Highlights of the deal include:
—Income tax rates: Extends decade-old tax cuts on incomes up to $400,000 for individuals, $450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6 percent, up from the current 35 percent. Extends Clinton-era caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.
This first highlight is one that I can get behind. Of course, I’m not sure how much of a
difference this will make in actually reducing the deficit. There aren’t many wealthy people that
actually pay 35 percent taxes on their income.
Capping itemized deductions will probably have a greater impact than
raising the rate. Of course, for many
wealthy individuals, this won’t have much if any effect since a large portion
of their income comes from capital gains and dividend income.
—Estate tax: Estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, such estates were subject to a top rate of 35 percent.
No problem here, as well.
I don’t understand how it is that the heirs of people who actually did
build a large estate can feel such a sense of entitlement when it comes to
their inheritance, and yet complain about the sense of entitlement that many
feel about being able to buy food.
Something has got to give and, at least for now, this seems to be the
right way to go.
—Capital gains, dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would increase from 15 percent to 20 percent.
This one is a bit trickier.
Raising dividend taxes will likely result in changes to dividend policy
by corporations. Rather than pay
dividends, more companies will likely opt for share repurchases, which is
another way of distributing cash on hand to investors. Then, the only time investors will have to
actually pay taxes on that money is when they sell their investments. Of course, the higher rate on capital gains
should recapture the lost tax revenue from reduced dividend payments, but it
may actually result in less realization of capital gains, with investors being
less inclined to sell and take a gain. I
guess, if we carry this logic through, this would lead to an increase in the
size of estates, which would eventually lead to an increase in estate taxes
collected. So, in the end, perhaps it
will lead to higher revenues, but those increases will likely be further in the
future.
—Alternative minimum tax: Permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from being hit with higher tax bills averaging almost $3,000. The tax was originally designed to ensure that the wealthy did not avoid owing taxes by using loopholes.
The alternative minimum tax is really kind of
ridiculous. The tax law provides people
with a way to avoid paying taxes, so then our lawmakers turn around and pass
this law to prevent people from taking full advantage of the law. I’m not sure what the logic of leaving those
loopholes that the AMT is supposed to help close available to middle and upper
middle income taxpayers is. And I’m not
sure that middle and upper middle income people really need to be protected
from an average tax increase of $3,000.
Somebody does have to pay the bills here.
—Other tax changes: Extends for five years Obama-sought expansions of the child tax credit, earned income tax credit, and an up to $2,500 tax credit for college tuition. Also extends for one year accelerated "bonus" depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.
I really don’t see the benefit of the child tax credit, let
alone any expansion of that credit. I
mean, really, do we want to encourage poor people to have more children? And after all, Obamacare, the last I heard,
requires health insurance to cover contraceptives. This is just politics in action. There’s no real sense to expanding the child
tax credit. If you can’t afford to have
kids, then don’t; your insurance will cover the “don’t have kids” part, at
everyone else’s expense.
The tax credit for college tuition was a bad idea from the
very beginning. We can see the result
clearly now: skyrocketing tuition and a concomitant loss of worth in having a
degree.
The accelerated “bonus” depreciation of business investments
is a good thing, in my opinion. It makes
sense for businesses to depreciate assets over the life of those assets, but it
doesn’t make sense to do that for tax purposes.
From a financial point of view, being able to expense business assets
for tax purposes would result in more projects being worthy of investment, thus
leading to increased business activity.
Really, I think this “bonus” depreciation should be made permanent.
A tax credit for research and development costs sounds like
it might be a good idea; then again, it may encourage spending for research in
areas that aren’t really likely to yield substantial benefits. This is probably another example of an area
where the government really should just butt out. As far as tax credits for renewable energy
goes… well, if those renewable energy sources were economically viable, there
wouldn’t be a need to provide a tax credit to encourage development.
—Unemployment benefits: Extends jobless benefits for the long-term unemployed for one year.
At this point, I don’t think it would be a very good idea to
just allow unemployment to end for so many people. The problem, as I see it, is that
unemployment benefits should never have been extended so long to begin
with. Unemployment seems to be becoming
a retirement plan. It wasn’t meant to support
people for so long; it was meant to provide a bridge between jobs. It needs to get back to that point as soon as
possible.
—Cuts in Medicare reimbursements to doctors: Blocks a 27 percent cut in Medicare payments to doctors for one year. The cut is the product of an obsolete 1997 budget formula.
I don’t know enough about this to even comment, other than
to say I don’t see why everything seems to be patched together and if we don’t
keep passing new laws then the law will revert to some antiquated method. We could avoid this kind of thing by making
permanent changes.
—Social Security payroll tax cut: Allows a 2 percentage point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2 percent.
This is a bad idea.
For lower income people, this means 2 percent less to spend, and for
many of them, they’re already only spending what they need to spend to
survive. This is, in fact one of the ways
that the government can actually remove money from the economy, making it smaller,
resulting in recession. I realize that,
if we’re going to have Social Security, it needs to be funded. I’m just not sure Social Security is a great
idea to begin with. Regardless, a big
part of this tax increase will actually come from money that would have
otherwise been spent, so I don’t see why we want to do this now.
Most of what I see here doesn’t seem to really address the
real problems that our economy is facing.
If the result is that we are supposed to be reducing our deficit, then
why are so many special interest tax credits a part of the deal? Taxes should be reduced for the people that
would spend that money, while taxes should be increased on people who would
just be adding to their personal cash stash.
Of course, things may be significantly different now, since the talks are proceeding as I'm writing this. And, of course, from what I see here, there really hasn't been much progress towards actually reducing the deficit.
Of course, things may be significantly different now, since the talks are proceeding as I'm writing this. And, of course, from what I see here, there really hasn't been much progress towards actually reducing the deficit.
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