Extending tax cuts eliminates uncertainty

December 14, 2010

— Kelly Phillips Erb is a small business owner and practicing tax attorney at the Erb Law Firm in Philadelphia. She is also the author of the popular Tax Girl blog. The views expressed are her own. —

Let’s get a few things straight from the start. I don’t like the so-called Bush tax cuts. I don’t believe in trickle-down economics. And I don’t 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 doesn’t 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.

That’s 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, that’s 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 hasn’t been able to make any significant changes in the tax laws that would benefit individual taxpayers and business owners without growing the deficit. It’s 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 isn’t 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, “the more strain it would have on the IRS’s limited resources.”

Of course, if the IRS doesn’t know how to plan, neither do accountants and other tax professionals. Trying to sort out new and potentially complicated tax issues during tax season isn’t a challenge that most of us are looking forward to.

At the end of the day, extending the tax cuts isn’t great fiscal policy as it will keep tax revenues flat and increase the deficit. It also doesn’t 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“.


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[…] The folks at Thomson Reuters asked me to write a piece about the Bush tax cuts and I was happy to oblige. Give it a read… I think you’ll be surprised. Extending tax cuts eliminates uncertainty | Analysis & Opinion […]

Posted by Extending tax cuts eliminates uncertainty | taxgirl | Report as abusive

No matter how you look at it, extending the Bush Era tax cuts is bad news for America’s future. These very tax cuts were hotly contested when they were first enacted. They were passed using the premise that they would only be for one year. Here we are years later still hooked on this crazy form of political free lunch. What flashes through my mind is the cover of an old John Lee Hooker Album. It was titled, “Free Beer and Chicken.” The cover art depicted throngs of people rushing through Heaven’s Gate, I’d suppose to get the free stuff. We simply can’t afford any more free lunches here in America. It’s time for Austerity to arrive here in the land of the free and home of lovers of Free Beer and Chicken!

Posted by Tom_MacKnight | Report as abusive

Continuing monetization of our debt to fund the Bush era tax cuts, which enable the rich to get richer while throwing crumbs down the food chain, becomes a relative pittance compared to the pork stuffed 2011 Federal budget. Ultimately it doesn’t matter, we’re only printing a few more minutes of facing reality.

Even the counter personnel at McDonald’s know this country is bankrupt. Washington continues to behave as if it ain’t so. psychosis [saɪˈkəʊsɪs] any form of severe mental disorder in which the individual’s contact with reality becomes highly distorted.

The Fed will continue printing money, until it can’t. When they can’t, everyone will understand very clearly how food stamps, unemployment checks, and medicaid/medicare have kept 80+ million Americans from going postal.

Note – Recently it took a whole 168 hours for the Treasury to issue bonds to Primary Dealers (who bought them with money borrowed for near zero interest from the Federal Reserve) and Primary Dealers to sell them to the Federal Reserve for millions in profit. Why doesn’t MSM report THIS as a headline story? (Yes, I know this is a rhetorical question).

Posted by Pumpkin731 | Report as abusive

Wish the Congress would get serious about an overhaul of the entire tax system. Dump all the exclusions and exemptions. Make it simple.
AND somehow forbid Congress from posting ear-marks to every piece of legislation. Even this new tax bill sucked in ear-marks. Exact number I do not re-call, but hundred.
Congress is voting on tax cuts while dispersing ear-marks for re-election. Did not 2010 election say anything to these folks?

Posted by RWPHILLIPSNC | Report as abusive

The thing I find interesting about this is the whole way that everyone phrases the discussion. Tax cuts for the rich? This makes it look like the rich get a free ride when it’s already a graduated income tax in which a large portion of the population pay nothing, zero, zilch. Also, the use of the word cut. The tax rate wasn’t always this high, so why don’t we phrase the discussion as repealing a past tax rate increases?

Tax policy is a very complicated matter. However, if you want to simplify the discussion, use W.’s words. If you leave the cookies out on a plate, somebody is going to eat them. The question is at what point is the government starving and at what point is it a disgustingly fat pig. Me thinks it has gotten a bit to chubby in the past fifty years. A little forced diet could do it some good.

Posted by mysteryroche | Report as abusive

I was thinking earlier today that the current economic environment coupled with the ever aging baby boomers creates a perfect environment for our leaders to further manipulate the populace by their favorite tool, creating fear. The author uses the concept of “uncertainty” as the basis for her decision making. Uncertainty of the future sure sounds like fear to me. So once again our “leaders” promise to create cuts to extend unemployment, tax cuts to the middle class and of course the rich get a huge cut. So we all line up and support this bad plan so we can have abit more “security” in our pocket,it drops our personal anxiety abit and allows us to turn a blind eye that our country continues to spend without the means to pay and from my perspective we continue to allow our leaders to dangle a carrot of security so we can later complain in private about the debt, poor policy ad how “they” whoever they are are ruining our country. I agree with a previous posting that everyone knows the country is broke. Unfortunately all of us are in on it, waiting in line for our portion of the unemploment check, entitlements is the rule of the day, cut someone elses but not mine…uncertainty, fear, its all about each of us wanting our part regardless of the effect on the Nation. Our leaders depend upon it.

Posted by IAN60 | Report as abusive

[…] Iraq but with our lives on the line I am sure they’ll start hiring once already low tax cuts are made permanent. Or if social security & medicare benefits are cut. Or public pensions obligations are ignored. […]

Posted by The uncertainty WMD – its kinda like Iraq but with our lives on the line | Stocks Go Up. Stocks Go Down. | Report as abusive