Tax Break

If you think 2011 taxes were bad, wait until this year’s tally

April 17, 2012

“This is going to be one of the craziest years I’ve seen,” said Mark Steber, chief tax officer for Jackson Hewitt Tax Services. “It’s kind of the perfect tax storm.”

For those of us still smarting from the 2011 tax comeuppance, 2012 is nothing to look forward to.

A host of tax deductions are set to expire by Dec. 31. Together they add up to many billions of dollars in breaks for taxpayers.

Of course, 2012 is also an election year. So fixing any of that before mid-November is not even getting serious discussion. That will leave only a month or so for the new Congress to do its typical patching and extending of various breaks. Whether they’ll be able to agree on such moves at all will have a lot to do with the Nov. 6 election results.

Some of the writeoffs scheduled to expire or drop significantly in value in 2012 include:

  • The Alternative Minimum Tax patch
  • Bush tax cuts
  • Student loan interest deduction
  • Child and dependent care credit deduction
  • Earned income tax credit
  • Student loan interest deduction

A full list from Congress’ Joint Committee on Taxation is available here.

Of these breaks, the biggest dollar value belongs to the Bush tax cuts and the Alternative Minimum Tax (AMT) patch. The confluence of these two expiring in the same year is a big part of Steber’s 2012 “perfect storm.”

The Bush tax cuts have come up for renewal every two years. The AMT has been patched 18 times since it was created in 1969.

Without a renewal of the AMT patch, another 34  million Americans would become subject to it, according to the Congressional Research Service (CRS).

The 2-year AMT patch for 2010 and 2011 cost an estimated $136.7 billion, according to this CRS report .

A permanent fix would be hugely expensive. Paired with an extension of the 2001/2003 tax cuts first enacted under the Bush administration, and renewed by President Barack Obama in 2008,  a permanent AMT fix would cost something on the order of $2.7 trillion over the 2011-2022 period, according to that CRS report.

That difference in magnitude explains why the AMT gets patched every few years, rather than overhauled.

Unlike other tax changes, which can sometimes be more challenging to detect, the AMT has a readily apparent impact on the voting public, since it becomes clear when we prepare our taxes, Steber notes.

If these issues are not fixed in the last weeks of 2012, there will be a sharp political backlash, Steber predicts.

“You are going to pay more tax. Your refund is going to go down. Elected officials don’t want that,” he said. “People will vote on that.”

With the high likelihood of tax changes at the very end of the year, there will be very little time for the IRS to implement them. Tax forms already will be printed and software designed.

IRS Commissioner Douglas Shulman has voiced concern.  “You could have a real disaster in the filing season where there’s total confusion,” especially for the alternative minimum tax patch, he told an audience at the National Press Club on April 5.

Comments
3 comments so far | RSS Comments RSS

Perhaps the IRS will graciously give taxpayers automatic 30 day extensions in April 2013 to file and pay for 2012, interest and penalty free during that 30 day grace period, to make up for the taxpayers’ inconvenience?

Posted by DisgustedReader | Report as abusive
 

Everyone enjoys the benefits of collected taxes but no one wants to pay for those benefits. Lazy and not patriotic. If you have to pay a lot in taxes it means you made a lot of money. Stop being slackers!

Posted by NewsDebbie | Report as abusive
 

Let all the tax breaks lapse, period. And no more tax cuts for the time being. Fix the deficit, deal with the boomer bust shortfall, and then fiddle with taxes.

Posted by SanPa | Report as abusive
 

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