A LAST MINUTE AGREEMENT

As I do each morning when I rise (except during the tax season), I have been checking Twitter for tax-related “tweets” that lead me to online sources of news and commentary.  This morning I was especially interested in finding details on the literally 11^th-hour Senate “fiscal cliff” agreement.

CNN MONEY tells us “Senate Bill Stops Many Tax Hikes, but Leaves Big Issues Pending”.  The bill would (highlights are mine) -

“Make most Bush tax cuts permanent: The Bush-era income tax rates would be permanently extended for all income up to $400,000 ($450,000 if married). Bush tax cuts that apply to income above those levels would expire.

Effectively that means for households above those thresholds, their top rate would rise to 39.6%, up from 35% in 2012.

Plus, the capital gains and dividend tax rates for these high-income households would increase to 20% from 15%. For everyone else, investment tax rates would remain at 15% or below {I assume permanently, and I assume the 0% rate remains – rdf}.

The compromise bill would also preserve the expanded parameters for the American Opportunity Tax Credit, the Child Tax Credit and Earned Income Tax Credit for 5 more years.

Permanently protect the middle class from the AMT: The bill would permanently adjust the income exemption levels for the Alternative Minimum Tax for inflation.

Cap itemized deductions on high-income households: The Biden-McConnell compromise would cap how much those making $250,000 (married couples making $300,000) may take in itemized deductions.

Retain several expired tax breaks for individuals: The compromise bill would extend for one or two years a few "temporary" tax breaks for individuals that regularly are extended. These include an option to deduct state and local sales taxes in place of state and local income taxes; and a deduction for elementary and secondary school teachers for certain expenses.

Permanently extend a more lenient estate tax: The legislation would preserve the current estate tax exemption level of $5.12 million but index it to inflation for future years. And it would raise the top rate to 40% from 35% currently.”

Any negotiated agreement made at the very last minute (literally) by idiots like the members of Congress is bound to be at the very least flawed, if not actually bad.

My concern is that in making the bulk of the provisions “permanent” will give the Administration an excuse to avoid tackling serious and substantive tax reform in 2013 (or through 2016) as had been hoped for (at least by me) – since there is no looming expiration deadline.

I guess a permanent AMT patch is better than annual one-year patches – but neither are better than doing away with the dreaded AMT altogether as part of an overhaul of the convoluted Tax Code.

There were some temporary aspects of the bill – the American Opportunity Credit, Child Tax Credit, and the Earned Income Credit, all with refundable components, for 5 years.  A clear sign that the Tax Code will continue to be improperly used as a vehicle to distribute social welfare benefits.  And the excessive tax fraud that results from refundble tax credits will continue for at least another 5 years.

The bill seems to bring back “Pease-like” limitations on itemized deductions for the “wealthy” (although these victims are less wealthy than those hit by the increased tax rate).  I am against any kind of cap or phase-out of itemized deductions in general, and would rather remove some of the actual deductions.

And the popular “extenders” have been extended for “one or two years”.  As long as the idiots were making things permanent what is wrong with these?

As I said in my previous post it ain’t over till it’s over.  I do not hear the fat lady warming up.  The big challenge to this agreement is the House, who will either accept, reject, or revise (most probably revise) the Senate bill.  And then there is the Conference Committee, and the beat goes on.   

On the 2013 withholding front ACCOUNTING TODAY reported this morning that -

“The Internal Revenue Service released new income tax withholding tables for 2013 late Monday to reflect the expiration of the 2001 and 2003 Bush tax cuts and the more recent payroll tax cuts of 2011 and 2012, but noted that the guidance would be modified if Congress acts.”

And -

“In issuing the guidance, the IRS said it takes note of the fact that Congress is currently considering legislation that could affect these rates. If the legislation is enacted, IRS will issue new, corresponding tables at that time.”

I had received an email from Intuit Payroll (Quickbooks) on Friday stating that it would continue the 2012 withholding tables into 2013 until Congress acts.  I trust software companies in general do the same and wait for the end of this negotiation before revising their programs, so as not to FU withholding.

TTFN