THE TAX ATTIC with Jerry Coon — December 16, 2010

Negotiations to benefit economy

Chicago is a great place to spend a weekend. Our daughter, Kim, is working on her master’s degree at DePaul University, so visiting her provides the perfect excuse to go to Chicago and take in some of the sights.

Jerry Coon

On Friday night, we went to the Christkindlmarkt in downtown Chicago. The Christkindlmarkt is an outdoor bazaar that originated in Germany. Knowing the Germans, it most likely was really just a great reason to get together and drink some beer. It has evolved and now has many merchants from many European countries displaying their Christmas wares. Beautiful handcrafted ornaments, Christmas decorations and gifts were available from a variety of countries. We sampled and bought some made-on-the-spot chocolate. Hot, spiced wine was available as well as German beer. It was a clear, cold perfect night for strolling around Daley Plaza.

Of course, that changed on Saturday. It was still cold, but the clear went away. It rained all day Saturday so we went inside to the Museum of Science and Industry. Among the attractions we looked at were the Christmas trees on display from around the world. The museum has more trees than Meijer Gardens, but all of us agreed that the Meijer trees are better.

When we left, we were greeted by much windier, much colder, and thicker rain that eventually did freeze and then turned to snow.

Sunday was brutal and it took us about twice the normal time to get home, but we did get home safely. Friday, on the way down, we did stop at the Cabalas in Hammond. Too bad the Cabalas in Walker was never built. That could have been a destination-type of attraction for Walker. Rockford could use a large destination-type of attraction. Chicago has several attractions to bring people into the area such as the Ferris wheel on Navy Pier, the U-505 German submarine within the Museum of Science and Industry, the Shedd Aquarium, and the Goose Island Brew Pub. I had to throw in the brew pub because we aren’t going to match Chicago on those other attractions, but I believe our city would support a Brew Pub. Sometime in the future, I hope to not have to travel to Chicago, Holland or even Grand Rapids to sip on a locally brewed beer, because we will have a destination-type of brew pub in our city. I just hope this happens in my lifetime.

Speaking of lifetimes, an extraordinary event is occurring right now in Washington. The Democrats and Republicans are compromising on a tax bill. We haven’t seen compromise on any type of bill in most of our children’s lifetimes. Both sides are standing up for what they believe is right and forcing the other side to negotiate in their full faith.

It’s on our credit, of course. The Democrats didn’t want the Bush Tax Cuts to be given to single persons with income of more than $200,000 and joint filers with more than $250,000 of income.

The Republicans did not want to extend unemployment benefits for the approximately 2 million people who have run out of time to find a job.

The Democrats did not want to increase the inheritance tax provisions above the levels that will take effect on January 1, 2011.

The Republicans did not want to use additional stimulus monies to attempt to jumpstart the economy.

Needless to say, something had to give on both sides, and it does appear that both sides have given. It appears that the Bush Tax Cuts will be extended in their entirety for two more years. This is a win for the Republicans.

Unemployment benefits will be extended for 13 months—a win for the Democrats.

The inheritance tax will max out at 5 million for singles and 10 million for couples and will not exceed 35%. This is a win for the Republicans.

There will be a partial payroll tax holiday. Taxpayers will see their FICA tax reduced by 2%. In effect, all taxpayers with W-2s will receive a 2% pay increase on January 1, 2011. This is a win for the Democrats.

Both sides have wins and both sides have losses. The estimated tax bill for all of these provisions is $900 billion. That $900 billion will simply be added to the deficit.

It is hoped, however, that the provisions in whole will serve to stimulate the economy. Extending the Bush Tax Cuts will keep taxes at the current levels and will not take money out of the economy. Extending the unemployment benefits will give needy taxpayers money that will be spent in its entirety directly into the economy. The inheritance tax provisions will keep money in the hands of people inheriting wealth. Whether they spend this money or keep it in the bank remains to be seen. Finally, the payroll tax holiday should give taxpayers some paycheck-to-paycheck spending money. Most likely, a majority of that money will be spent on a paycheck-to-paycheck basis.

All in all, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is an example of a negotiated settlement that may or may not end up being good for all of us. But it is an example of a negotiated settlement and we need more of that in Washington and could use some of that in Lansing, too. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns Action Tax Service in Rockford.
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