Who's watching the store?? | Eastern North Carolina Now

Who's watching the store??

    The Reps. have managed to allow themselves to be out foxed at every turn when it comes to taxes. We now find the country in a truly awkward position of facing some fairly significant tax increases after the elections at the end of this year. No matter what happens, the Reps will be left holding the bag. If the so called Bush tax cuts are allowed to expire, the Reps will be accused of increasing taxes - anathema to many. If they do not let the tax cuts expire, they will be accused of wasteful spending unless they find a way to "pay for" the continuation, another sleight of hand commonly used to create the impression that they are being good stewards of the taxpayers' money. Regardless, they will be accused of protecting the "rich".

    What usually happens is that good sounding temporary tax reductions are proposed and agreed to. The reductions are not nearly the problem that "temporary" is. It's a problem, because in the normal way, when most of us hear "temporary", we think of something that has a beginning and an end. What we don't realize until it is usually too late to do anything about it is that Congress' has it's own definition of "temporary". In the Congressional lexicon (both sides of the aisle), "temporary" has a beginning but almost never an end.

    Generally, the temporary reduction is intended to take care of some problem or other or to elicit some action or activity. The problem is that when it's time for the tax cut to end (as promised) anyone who tries to demonstrate the integrity of keeping their word will be accused of raising taxes (usually on the poor). Unfortunately, when it's time for "temporary" to end, the purpose of the reduction is long since forgotten. In the meantime there has never been any continuing assessment as to the efficacy of the tax reduction (handout). By then all we know is that keeping our promise will do great violence to the vast middle class, or so we are told. The handouts are institutionalized and there is no further conversation as to all the good that is supposed to result from the handout. The truth be known, it is more than likely that the temporary handouts are for the purpose of garnering votes or working the opposition into an untenable position vis a vis the taxpayers (voters??) or both. A case in point is the student loan program. In 2007 the interest rate on student loans was temporarily reduced to 3.4% with a scheduled end date of about September 2012. And now guess what. The anointed one is beating the bushes (no pun intended) to keep the 3.4% rate rather than reverting to the 6.8% included in the "temporary" reduction. What he failed to mention when he was soliciting support for retaining the 3.4% rate was that the rate only applies to new loans.

    So lets look at what we are going to be arguing about after the election. It won't matter who wins, the argument will happen, and it will cover the same ground. My guess is that when it starts it will be extremely difficult to find anyone (on either side of the aisle - which is a truly sad commentary about the integrity of the folks we have sent to Washington to represent us) who is pushing to keep the promises made when the individual "temporary" tax legislation was enacted.

    * The lowest tax rate will change from 10% to 15%, an increase of a little over 33%. The highest tax rate will change from 35% to 39.5%, an increase of approximately 12.8%.

    * Long term capital gains tax rates will increase from 15% to 20%

    * All dividend income will be taxed as regular income. Currently so called "qualified dividends" are taxed at capital gains rates.

    * The 2% payroll tax reduction will end at the end of 2012. Social Security payroll taxes are paid by both the employer and employee. A 2% reduction in the amount paid by the employee was enacted to get the economy moving (it hasn't) and is scheduled to expire at the end of the year.

    * The marriage penalty will end. Before "fixing" the marriage penalty the standard deduction for a married couple (filing Married Filing Jointly - MFJ), was less than the combined standard deduction taken by the same couple (filing married filing separately - MFS). The fix was that regardless of how they filed, a married couple got twice the deduction as did a single. As an aside, the same situation exists with the amount of social Security that is taxable. When the income of an unmarried social security recipient plus one half of the social security received exceeds $34K (2011 numbers), the social security benefit begins to be taxed. When applied to a married couple (MFJ) instead of a threshold for taxation being $64K, (i.e. double the $34K for a single person), it is only $44K for the married couple. You get penalized for being married - ergo the marriage penalty.

    There are more tax increases on the horizon - primarily of the "stealth" variety. (Stealth tax increases - those that you don't see coming - until they bite you.)

    * Medical expense deduction. How about slipping in a change to the allowable amount of medical expenses that can be deducted on Schedule A?? Currently you are allowed to deduct the amount of your medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI). The 7.5% has been increased to 10%.. You will only be able to deduct the amount of your medical expenses that exceed 10% of your AGI.

    * Tax on Real Estate transactions. How about a 3.8% tax on certain real estate transactions. This applies to high income taxpayers who realize a "profit" on the sale of their residence, but it clearly is a "foot in the door". Of course losses on the sale of your residence will continue to not be deductible.

    There are more Obamacare tax increases to deal with after the first of the year. A bucket full of tax increases kick in when the new year starts.

    BTW - the new increases don't kick in until after the next (and for sure Obama's last) election?? Do you suppose there could be any significance of the time line?? The Obamacare implementation time frame certainly seems fortuitous.

    And what about the Medicare reductions that were siphoned off to help make Obamacare look like it isn't costing the taxpayers' an arm and a leg?? The problem with that is, that like almost every other year, a large part of the (predicted) Medicare "savings" are achieved by reducing the amount to be paid to the Doctors who serve Medicare patients. That cannot be allowed to happen, so "Doc. Fix" legislation is implemented each year which restores the reimbursement rates. It is normally a separate piece of legislation and gets little attention. (So much for Obamacare "savings".) And, speaking of Medicare, how about Medicare Advantage which is scheduled to expire in the August or September time frame (Obamacare provision). That is going to leave a lot of seniors high and dry just a month or two before the election (not good for whoever is responsible for that). Well, guess who that is. Could it possibly be the same person who is trying to pour a bucket of money on the program and extend it's expiration a few months until after the election?? It sure could. On this one, let us hope that the Supreme Court solves the problem for the Reps. and invalidates the entire law. This simply one more (of many) "stealth" tax increases by the Anointed One.

    And then there is the annual Alternative Minimum Tax (AMT) "fix". Why it isn't simply amended so the AMT threshold is keyed to inflation remains a mystery. An early version of this tax came into being during the Nixon administration. The version currently in use came into being during the Reagan Presidency. It was intended to force folks with a fairly high income and a lot of deductions to pay at least some tax. When it started it didn't apply to many folks. The people to whom it did apply were the rich, and even at that, it was only the really rich who were significantly reducing their tax burden with a lot of otherwise legal deductions. The AMT was designed to ensure that even those folks paid something.. Every year we are forced to change it to keep the AMT focused on the well to do. Why the congress doesn't fix it once and for all remains a mystery. Do you suppose that the Congress believes they score points with the voters by making it a big deal each time they "fix" the AMT??

    It doesn't really look as though anyone is watching the store. It can't be Who. Who's on first.

    Just remember When keeping your word or even trying to keep your word is suddenly a bad thing to do, you may rest assured that you have been had!! And so it goes...

    D'ya think??