On Tuesday, the chief of staff of Congress' Joint Committee on Taxation said that "the federal tax system is on the precipice." According to the Congressional Budget Office, taxes will rise by more than $5.4 trillion over the next 10 years if Congress and the Administration are unable to reach a resolution to the fiscal cliff. Higher taxes plus sequestration’s automatic spending cuts to defense and other government spending would send the economy into recession.
Consider, too, the tax season nightmare that will torment America this spring if Congress and the administration fail to extend key provisions of the tax code -- notably the temporary "patch" to the alternative minimum tax (AMT) that expired at the end of 2011 -- as the acting commissioner of the Internal Revenue Service, Steven Miller, told Congressional leaders this week (letter).
The AMT patch is not well understood outside of tax circles. In short, it’s a temporary increase in the exemption amount that keeps an additional 28 million taxpayers from facing this arcane and complex calculation. Failure to extend this provision would unexpectedly and unintentionally increase their tax liability by $92 billion this tax filing season.
On a practical level, given the complexity of the AMT, the IRS cannot quickly reprogram its computers if Congress does not extend the patch. The IRS warns that "there would be serious repercussions for taxpayers" if the AMT patch is not enacted by the end of this year.
Because of the delays created by the need to reprogram IRS computer systems, the acting commissioner stated that the IRS would need to "instruct more than 60 million taxpayers that they may not file their tax returns or receive a refund until the IRS completes the necessary systems changes. Because of the magnitude of and complexity of the changes, it is entirely possible that these taxpayers would not be able to file until late March 2013, if not even later."
According to the Joint Committee on Taxation, 60 tax provisions expired at the end of 2011 and will affect this filing season. These expired provisions -- in addition to the AMT patch -- include the deduction for state and local sales taxes, a deduction for teachers' out-of-pocket expenses for their classrooms, and important business provisions including the research credit, active financing rule, and the "look-through" rule for payments between related controlled foreign corporations.
An additional 41 provisions will expire at the end of this year without an extension. Without new legislation, starting January 1 income tax withholding rates will rise for all workers, the child credit will be cut in half, marriage penalties will be put back into the tax code, and the top dividend tax rate will increase from 15 percent to 44.6 percent, including the new Medicare tax applying to investment income and the impact of various phaseouts.
These provisions affect nearly all individual income tax payers and thousands of corporations.
You can understand how standing at the tax precipice can induce nightmares. The President and Congress must prevent the horrible dreams from becoming reality. The time to act is now.
Motion to proceed to consideration of S. 744, #immigration bill, passes Senate by 84-15. Getting right into amendments.
You may also be interested in the following related articles on Business Roundtable Today…
Search the Business Roundtable Today archive for interesting content.