Extending tax cuts eliminates uncertainty
Letâs get a few things straight from the start. I donât like the so-called Bush tax cuts. I donât believe in trickle-down economics. And I donât think it makes good fiscal sense to make the tax cuts permanent.
Yet, as the calendar creeps closer to December 31, I find myself in support of extending the tax cuts.
I know, it doesnât appear to make sense, but there is a reason. You see, as a small business owner and an attorney who counsels many businesses, I can tell you there is something worse than the fear of higher taxes: the fear of the unknown.
Thatâs what we have right now.
Uncertainty can paralyze a business. Do you hire new employees now or later? Order more product or wait and see? A certain amount of planning is necessary to ensure that any business runs smoothly. Right now, thatâs fairly impossible.
A recent Turbo Tax survey indicated that a majority of taxpayers are not engaging in year-end tax planning due to the uncertainty in the law.
For nearly 10 years, Congress hasnât been able to make any significant changes in the tax laws that would benefit individual taxpayers and business owners without growing the deficit. Itâs a bit worrisome they now feel they can do it in just a few weeks.
At this point, even if Congress crafts a deal that appeases both Democrats and Republicans, no one is prepared for the outcome.
The IRS isnât sure how to deal with the uncertainty. Tax tables, forms and publications may not be ready in time for tax season which begins in earnest in about a month. A message on the IRS website warns taxpayers that the AMT (Alternative Minimum Tax) levels for 2010 might still change. IRS Commissioner Doug Shulman even appealed to Congress to end the uncertainty noting the longer the wait, âthe more strain it would have on the IRSâs limited resources.â
Of course, if the IRS doesnât know how to plan, neither do accountants and other tax professionals. Trying to sort out new and potentially complicated tax issues during tax season isnât a challenge that most of us are looking forward to.
At the end of the day, extending the tax cuts isnât great fiscal policy as it will keep tax revenues flat and increase the deficit. It also doesnât address the bigger problems lurking behind the cuts such as the increasing complexity of the Tax Code. But it may be sound tax policy.
It will give taxpayers, especially those who own businesses, consistency for planning purposes. Even better, it will allow for some reasoned and thoughtful discussions about a long-term tax strategy rather than the current piecemeal, reactionary planning. With some extra time, maybe Congress will finally get it right.
Read Lew Prince’s post: “Tax cuts for the rich bad for small business“.