Isn’t Extending the Bush Tax Cuts A Temporary Fix?

Christopher Axene | December 17th, 2010

While some may be breathing a sigh of relief now that the brokered tax package has passed through Congress and is being signed by President Obama, others among us are becoming increasingly alarmed at the “temporary” nature of our tax laws – and the impact these temporary fixes will have on our long-term planning.

A recent article in the Wall Street Journal points out that in the late 1990’s only a dozen or so tax provisions were short-term, needing renewal by the federal government every year or two. Today, there are 141 temporary provisions. And with the passage of our brokered tax package, the entire personal income tax structure is being transformed into a temporary tax code.

The uncertainty in the individual tax code is of special concern to us here at Rea & Associates. Many of our clients operate small closely-held or family-owned businesses. Some do not pay corporate tax, instead passing business income through to the owners for taxation on their personal returns. Some of our clients are paralyzed with fear to make investments or business decisions that they feel may hurt them in future years due to potentially higher tax liabilities. To quote the Wall Street Journal article: “the level of uncertainty, unusual for developed nations, complicates planning and discourages hiring and investment, many economists and corporate executives say.”

The estate tax provisions also provide only temporary answers to those who are doing estate planning. Not to be morbid, but basically, all of our sophisticated estate planning measures can only assist a client if he or she dies between now and 2013. Without another extension or a permanent fix to the estate tax, in 2013 the estate tax will revert to the top rate of 55 percent with a $1 million exemption. Will Congress kick the can again?

The government’s recent talk of revamping the federal tax code carries its own sense of uncertainty. The president’s deficit-reduction panel suggests placing on the table long-established credits and deductions, some of which many people may consider “sacred cows.” Many taxpayers doubt the ability of Congress to legislate a “fair or equitable” new tax law – but time will tell.

So let the planning begin for the next two years, with business as usual. After that – it’s anyone’s guess!

To view the complete Wall Street Journal article, please visit here: http://tinyurl.com/26nb5rh

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