COMMENT & ANALYSIS
Avoiding taxmageddon Conservatives try to prevent $4.5 trillion tax shock
Americans have less than a month to sort through the complicated tax code to file on time. The annual scramble to find receipts for deductions and forms for credits is a monumental waste of time and money. This pain will soon deepen, as everyone’s taxes are set to go up at the end of the year — unless House Republicans succeed in reforming the system.
House Budget Committee Chairman Paul Ryan absorbed the recommendations from the extensive Ways and Means Committee hearings on tax reform and this week proposed a simpler code with lower rates in return for eliminating special-interest loopholes. There are an estimated $1 trillion worth of tax preferences in the code, which is about the same amount generated by individual taxes. Most deductions are accessible only to high-income people who can afford the best tax advisers. Eliminating them allows for lower rates. The current six income brackets would slim down to two brackets at 25 percent and 10 percent.
The White House sent out an email Thursday claiming it “did the math” and the House Republican budget would give “millionaires and billionaires” a $150,000 tax break, paid for by “ending Medicare as we know it.” That rather impressive tally must have used imaginary numbers, considering the House GOP hasn’t yet finalized any specifics on salary breakdown or tax credits. The accountants at 1600 Pennsylvania Ave. are only correct that Mr. Ryan would end Medicare as we know it. The health care program would no longer be the only option available to seniors, and that’s good because Medicare will be bankrupt in eight years if nothing is done.
The Obama administration has no counterproposal on income-tax reform other than Mr. Obama telling his supporters at fundraisers that, come next year, “your taxes shouldn’t go up” as long as you make less than $250,000 combined income. For those who make that much, he wants rates to rise to 39.6 percent. Yet everyone will see payroll, capital gains, dividend, estate and alternative minimum taxes go up.
Personal income-tax rates directly affect economic output because 75 percent of small businesses file as individuals. To prevent the economic shock wave that would hit if rates were to return to the pre-president George W. Bush levels, House Majority Leader Eric Cantor on Wednesday introduced a bill that would let small businesses with fewer than 500 employees deduct 20 percent of their income. Also to help these engines of job creation, the Virginia Republican’s plan would start with the 2012 tax year, bringing immediate cash flow for investment and growth to 99.9 percent of businesses in America.
If conservatives win in the November elections, tax reform of all kinds will be at the top of the agenda for 2013. This economy can’t stand the blow of nearly $5 trillion in tax increases that would hit Jan. 1 if the Bush rates expire. Congress needs to move swiftly to reform the code before it’s too late.