For months, elected government officials have held the
American public hostage with their seeming inability to address
critical issues. With the
election over and done with
, it's finally time for government leaders to act like leaders
and start working on building some long-awaited certainty on our
hodgepodge of tax laws currently on the books.
What's already gone
Already, a number of tax laws that were in effect for last year's
tax returns have expired. It's not too late to bring them back
retroactively, but any delay in doing so could force the IRS to
hold off on coming up with complying tax forms. That in turn
could force early filers to wait before they can file and receive
much-anticipated refund checks.
Arguably the most substantial already-expired provision is the
annual patch to the Alternative Minimum Tax. Current law allows
an exemption from the AMT, but the amount isn't indexed for
inflation. As a result, Congress has to pass a law every year
that temporarily increases the exemption, but it has never been
able to muster enough support to put a more permanent fix into
place. The fallout from a potential failure to pass an AMT patch
is huge, with millions of taxpayers possibly paying as much as
$8,000 more in income taxes.
But several other provisions have already officially gotten
chopped and need government action to bring them back. Among them
are deductions for college tuition and other higher education,
the choice to use state sales taxes as an itemized deduction,
favorable treatment for charitable donations from IRAs, and
deductions for teachers' school expenses.
Meanwhile, plenty of other provisions are set to change at the
beginning of 2013, making up what's been well publicized as the
. The biggest changes are the increases of tax rates from their
current bracket structure ranging from 10% to 35% to higher rates
stretching from 15% to 39.6%.
Special rates on dividends
and capital gains are also set to expire.
But a host of other provisions are set to see big changes:
- Favorable provisions for the
Earned Income Tax Credit
expire, reducing the maximum credit amount for taxpayers.
- The temporary payroll tax holiday that reduced the amount
of tax withheld from paychecks for Social Security by 2
percentage points is set to expire, pushing Social Security
withholding back up to 6.2%.
- The child tax credit is slated to drop from $1,000 to
- The contribution limits for Coverdell Education Savings
Accounts will drop from $2,000 to $500, making them even less
useful for college savings.
- Credits for college education and child care expenses will
More tax reform needed
Yet beyond the immediate needs to address urgent issues are
far-reaching reform ideas that the government needs to address.
The link between lobbying and corporate tax benefits, for
instance, disturbs many taxpayers' sense of fairness, with
) , and
) among those spending big money to earn valuable tax subsidies.
GE and Boeing also made a list of companies with very low
effective corporate tax rates, even as GE,
(Nasdaq: ORCL) , and
(Nasdaq: CSCO) seek a repatriation tax holiday to bring overseas
cash back into the country.
To their credit, both candidates saw the need during their
campaigns for extensive tax reform proposals. Although political
expediency kept details to a minimum, major changes
likely to happen in the coming months and years. Despite fears of
gridlock due to a divided Congress, pressing matters like the
ballooning national debt and the future of the ailing Social
Security system demand a faster pace of action.
Watch and act
As the end of the year approaches, it'll be crunch time for
lawmakers to move on tax provisions, especially ones that they'll
need to enact retroactively. If your elected representatives,
whether new or incumbent, are slow to act, take a minute and give
them a push by getting in contact with them. The financial health
of the nation is at stake.
The prospect of repatriation taxes certainly isn't the only
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