The “Fiscal Cliff” negotiations seem to be heating up. The inane haggling over the final version of the inevitably awful tax law that we will have for this year and next year seems to have heated up a bit yesterday. Details are cloudy and could change, but here’s what it looks to me like they are talking about for taxes:
- An increase of the top ordinary income tax rate to 39.6%, but at a level of $400,000 or higher; the President had been holding out for a $250,000 threshold.
- Some stupid restriction in the tax benefits of itemized deductions — perhaps capping the value of the deductions at 28%.
- An AMT patch retroactive to last year and extension of all of the “expiring provisions.”
The President’s most recent offer includes some surprisingly good tax policy in the midst of the general awfulness of the tax increase plans. From the Wall Street Journal:
On the tax side, the administration’s biggest proposal would permanently
extend relief from the alternative minimum tax. That’s a provision
designed decades ago to target the wealthiest Americans that now hits
tens of millions of middle-class households, in part because it wasn’t
indexed for inflation.
That would be great news. The politicians play with fire by temporarily increasing the AMT exemption every year or two as a cheap ploy to pretend they will receive additional AMT revenue after the temporary “patch” expires — allowing them to appear slightly less irresponsible.
The administration’s new proposal also would permanently extend a raft
of temporary tax breaks that Congress has passed over the years,
benefiting businesses as well as individuals. Notable examples include
the research and experimentation credit for businesses, as well as the
deduction for state and local sales tax for individuals.
While I would prefer just letting these expiring provisions expire, I’d rather they be made permanent than going through the charade of re-enacting them every year or two just to play stupid budget games.
Fiscal Cliff Notes:
Nick Gillespie & Veronique de Rugy, Obama and Boehner, Both Reckless Spenders
New York Times, Obama’s New Offer on Fiscal Crisis Could Lead to Deal
Russ Fox, Fiscal Cliff Deal Near?
Ashlea Ebeling, Millionaires Are Doing Roth Conversions Before The Fiscal Cliff Hits, Should You Too? (Forbes)
Jason Dinesen, An Example of What Could Happen if an AMT Patch Isn’t Passed
IRS extends employee – independent contractor settlement program. The IRS yesterday announced (Announcement 2012-46) that it is extending its program to resolve the classification of workers as employees or independent contractors.
Rudy Penner, How Eisenhower and Congressional Democrats Balanced a Budget (TaxVox). They spent a lot less, that’s for sure.
Jeremy Scott, Democrats Should View Japan as a Warning (Tax.com)
Joseph Henchman, IRS Reverses Course, Will Continue Providing Migration Data (Tax Policy Blog)
Paul Neiffer, What Does Unified Credit Mean?
Robert D. Flach, WHAT’S NEW FOR NEW YORK STATE INCOME TAXES FOR 2012
TaxGrrrl, Actor Called Out As Unpatriotic For Move Over Taxes Fires Back. So patriotism means letting them pick your pocket?