Repercussions of deficit reduction failure
We seem to be encountering strange occurrences today in increasing numbers. For example, in the last two years, the Rockford area has encountered epic rainfalls affecting the 100-year flood plain. The Gaylord Street neighborhood people can vouch for the amount of rain, since some of it ended up in their basements. I know that we are going through a climate change, but 100-year rains two years in a row? Climate change would also explain why we made it through all of November without having any appreciable snowfall. We will probably pay for that one later.
Another example is the percentage of people, less than 10%, who are satisfied with the job that our current president and congress are doing. Their approval ratings have fallen into uncharted territory. Shame on them, but shame on us, too. After all, we elected them.
Next year we get the chance to elect the president, the entire house of representatives, and a third of the senators. Perhaps there is something wrong with us if we don’t try a whole new batch of people or at least some new people. I’m hoping there are enough good people to choose from.
Perhaps it’s time for a new political party as well. The current two-party system makes it almost impossible for a third party to do well, but the current two-party system just doesn’t seem to be getting the job done.
Let’s call the new party the Common Sense Party. The only pledge you have to make is you will use your God-given gift of common sense to make decisions. Among the national elected officials crowd, using that gift seems to be in pretty short supply today. I know that sounds a little like a fairy tale, but I wonder if it wouldn’t work. If it’s true that about 15% of the population is hard-line Democratic and about 15% is hard-line Republican, then that leaves about 70% who might be interested in trying something else. If you believe the polls, that figure could be as high as 90%.
I bet Roger Allen would be one of the first to sign up. Anyone like Roger, who has been writing a column every week for about a hundred years, just has to be full of common sense and willing to try something else!
Now that the Super Committee or Deficit Reduction Committee has failed, it’s time to look at the repercussions of their failure. If common sense prevails, as it should have in the first place, we will see a combination of spending cuts and tax changes that will take effect on January 1, 2013.
Let’s concentrate on the tax change portion of the equation.
First and foremost, most likely the special capital gains rates will be eliminated. The special capital gains rate of 5/15% may be thought of as a sacred cow by the Republicans of today, but in reality those special rates have come and gone during our 90-plus years of tax history. We have had favorable rates since the days of Ronald Reagan and very favorable rates since George Bush implemented the Bush Tax Cuts and President Obama renewed them last year.
Second, the majority of the Bush Tax Cuts will most likely not be renewed beyond their December 31, 2012 expiration. The cuts that effect low and moderate income taxpayers will probably get a new life. For instance, the $1,000 child tax credit for dependent children under the age of 17 most likely will live on. We tend to forget that the credit in its original format was $500, and Bush increased it to $1,000. Anyone with children and common sense can see the advantages of continuing the credit at $1,000.
In addition, the expanded Earned Income Tax Credit (EITC) rules and amounts will be extended. Because of the apparent billions of dollars of fraudulent EITC claims, the credit is controversial. However, it does help taxpayers enduring tough financial times who legitimately need some help. The Internal Revenue Service is doing its best to enforce compliance with the rules.
Also, the expanded education tuition tax credits should be extended. Heck, ask anyone with children in college and they will tell you that based on the increasing costs of college education, the tuition credits should be expanded.
Finally, anyone earning more than $250,000 joint and $200,000 single most likely will be paying more taxes. The $250,000/$200,000 amounts are not written in stone, of course, but that is the amount that is continually being thrown around. No doubt, it will be interesting to see how this all turns out. This is Jerry Coon signing off.
Jerry Coon is an Enrolled Agent. He owns Action Tax Service in Rockford. Contact Jerry at www.actiontaxservice.com.