Tax Increases by Inaction

I was recently able to read an article entitled, "Enacting Tax Increases by Inaction", in Steve Leimberg's Estate Planning Email Newsletter.

NOTE CITATION-
LISI Estate Planning Newsletter #1682 (August 2, 2010) at http://www.leimbergservices.com Copyright 2010 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.
CITES:
Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub.L. 107-16) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (Pub.L. 108-27). NumberCruncher Estate and Financial Planning Software: (610 924 0515).

The article incorporates commentary by Daniel Evans, Numbercruncher's Chief Technical Advisor and noted Trust and Estate author.
 
Summary of Mr. Evans comments: 

"The tax cuts that were enacted in 2001 and 2003 will expire at the end of 2010, and those cuts include not just the 15% top income tax rate on capital gains and qualified dividends, and the reduction of the top income tax rate from 38.5% to 35%, all of which benefit upper-income taxpayers, but also the 10% income tax bracket, marriage penalty relief, and increases in the standard deduction, all of which benefit lower- and middle- income taxpayers.
If Congress ends up in a political gridlock, the result could be one of the largest income tax increases in history, and it will happen – not because of something Congress does – but because of what it doesn’t do."

Interesting pieces of the article:
 
HERE IS WHERE THE SENATE WILL JUMP – INTO INACTION:
"As we have seen very clearly in the attempt at health care reform, it takes only 41 Republican votes in the Senate (which the Republicans now have with the election of Scott Brown to fill the seat of the late Ted Kennedy from Massachusetts) to block any attempt to raise income tax rates for the wealthy."
"But these tax increases are already enacted and will happen if Congress does nothing."
I"t also takes only 41 Democratic votes in the Senate (or a Democratic majority in the more progressive House) to block any extension of the tax cuts for the wealthy."
"And Republicans also have every reason to block anything the Democrats try to enact, because they would really like to go into the 2010 election being able to point to enormous tax increases on working Americans in 2011 and blaming it on the Democrats who control Congress."

ELECTIONS ONLY MAKE THINGS MORE CONTENTIOUS:
"And as the elections in November get closer, there could be more acrimony and more fear of voter backlash, making compromise more and more difficult."
"So until the November elections are over, political gridlock seems virtually certain."
"There is every reason to believe that we’ll go into January of 2011 looking down the barrel of one of the largest tax increases in history, which may be “enacted” by inaction."

CITES AGAIN:
LISI Estate Planning Newsletter #1682 (August 2, 2010) at http://www.leimbergservices.com Copyright 2010 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.

Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub.L. 107-16) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (Pub.L. 108-27). NumberCruncher Estate and Financial Planning Software: (610 924 0515).

My Commentary:

Mr Evans supports his claim of inactivity negatively affecting tax burdens every spectrum of through his Numbercruncher software.  A family of four would have the following tax increases:

$500,000 family income (no itemized deductions) - $22,607 increase in tax burden

$250,000 family income - $7,640 increase

$50,000 family income - $1,115 increase

$30,000 family income - $478 increase

All of these tax burdens would be evenly more heavily increased if the family income includes qualified dividend income, which is taxed at the capital gain rate of 15% instead of the maximum rate of 35% on ordinary income.

It's amazing that Congress (and BOTH political parties) can seem to negatively affect the pockets of every American through this inaction, and yet manage to see it as a victory for both parties!  Politics are seemingly getting in the way of intelligent decision-making more often than ever before. 

Wouldn't it be another issue completely if one side took the position that inaction is the right move? Taking the position that we need to increase taxes on every American in order to pay for necessary government programs or to pay off some of the government debt.  Instead through this political 'possum-ing, they will effectively raise the tax burden on every American during one of the biggest recessions in American history, while pumping more and more stimulous money on the other hand.  What one hand giveth, the other hand taketh away. . .interesting! 

Is it just me or does this sound a little counter-intuitive?

This information is not intended as legal advice, nor does this article necessarily represent any opinions of Purcell & Amen, LLC.  Just food for thought.

Best,

Paul Gantner
Attorney at Law