The tax-cut document itself is a contemptible piece of consumer fraud. To make it appear to fit the budget, Bushies faked the cost. They ginned up long-term “savings” by providing for every cut to expire in 2011. That would hike taxes back to where they are today.
That won’t happen, of course. Some cuts will be rescinded, but others will hold. The Bushies have created “facts on ground,” which future policy will have to take into account. Long-run deficits may be larger, public services fewer and other taxes higher.
Here are a few of the tax changes coming your way:
But what about all the yapping in Congress about the need to cut tax rates to encourage investment and work? That rule seems to apply only to better-heeled people. In the next three higher tax brackets, rates drop by 3 percentage points over the next five years. The tip-top bracket gets a cut of 4.6 percentage points (the richest must need “encouragement” the most).
But you need a decent income even to get this rebate. Not one dime goes to the working poor, if their deductions and exemptions exceed the income tax they owe. In White House terms, they’re not real “taxpayers.” Citizens for Tax Justice puts this group at nearly 34 million people. An additional 17 million get less than the full rebate.
For those who earn enough to make it to the Treasury’s mailing list, rebate checks should arrive by Oct. 19. They’ll go to the address shown on the tax return you filed this year, so if you move be sure to leave a forwarding address. If your check doesn’t come by November, call the IRS at 800-829-1040.
In 2005, marrieds get a higher standard deduction (for those who don’t itemize). They can also look forward to a more favorable tax calculation. Alas, the latter change helps only those in the higher brackets, not the peons taxed at 15 percent.
Let us murmur a short prayer for the unmarried, who make up 58 percent of the taxpaying population. They’re already taxed at higher rates than couples on the same total income. Further tax cuts for marrieds will make the “singles penalty” higher still.
You can’t take this deduction, however, if you use the existing Hope or Lifetime Learning tax credit for the same student. “Parents are starting to need accountants to figure the best college plan,” says Mark Luscombe of the tax-information service CCH.
The new law also allows higher contributions to 401(k)s and similar plans. But don’t count those chickens yet. On paper, the liberalized retirement rules end in 2011. Most employers won’t go to the expense of changing their retirement plans until they’re sure the law will last, says Jacob Friedman, head of the tax department at the New York-based law firm Proskauer Rose.
What are the incentives here? (1) The “poor rich” ($3.5 million or $7 million) will make fewer gifts. (2) Rich husbands will leave more to their kids and less to trusts that cover their wives. (3) Charities will get stiffed. (4) The rich-rich and their lawyers will get the capital-gains tax on inherited property repealed. (5) In 2010, ailing parents will keep their bedroom doors locked when their children are in the house. It’s going to be a great year to die.
