Avoid­ing tax­maged­don Con­ser­va­tives try to pre­vent $4.5 tril­lion tax shock

The Washington Times Daily - - Opinion -

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.

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