If it's true that tax practitioners like new legislation adding complications so that our clients become even more dependent on us, well, our cup runneth over for the holidays. Congress is finishing up five bills to the president this week affecting the tax law in one way or another:
- The AMT Patch
- The mortgage debt forgiveness bill
- The energy bill
- A bill for military tax breaks, with attached technical corrections
- A bill with tax breaks for families receiving funds from the Virginia Tech shootings
The Congresscritters are also working on a farm bill with tax provisions larded in among the New-Deal subsidies that have outlasted the Depression by 67 years now. If they pass it, all tax geeks will need from Santa is a bigger stocking.
The only bad thing about these "gifts" is we can't return them for something useful.
AWFUL TAX POLICY IN SO MANY WAYS
There is so much bad tax policy in these bills, it's hard to know where to start. First, when you change the tax law constantly - six times just this month - that is bad policy by itself. When the law constantly changes, even the most diligent tax professional has trouble keeping up, and the poor taxpayr doesn't have a chance.
The AMT Patch is bad policy spawned by bad policy. The idea of having an "alternative" tax system as a "backup" for the regular system is just a way for politicians to have their cake while eating it. It gives away tax breaks with one hand to buy votes while taking them away with the other to show their concern for the "little guy" who isn't paying income taxes anyway. Rather than enacting a tax law that gets rid of the AMT and deals with the abuses it was supposed to address, the Patch just kicks the problem into next year, where Congress again will flail to deal with it ad-hoc.
The mortgage deadbeat relief bill has the bad policy of treating mortgage deadbeats better than other deadbeats just because they gambled on the real estate market, rather than, say, the stock market or the ponies. It does so temporarily, which is a bad idea, while making the exclusion for home sales (arguably a bad idea by itself) yet more complicated, which is never good. It also moves up part of a 2012 corporate estimated tax payment by one quarter, causing software and administrative complications to "pay for" the deadbeat relief by accelerating tax receipts that would be paid anyway by three months.
The energy bill limits itself to diddling with depreciation lives for some energy assets. The military bill makes the umpteenth change in military tax in the last 5 years, while fixing screw-ups from prior hyperactive tax legislative efforts. And the Farm Bill is just loaded with special interest tax subsidies, paid for by obscure traps and foot-faults and an "economic substance" provision that the IRS and Treasury have always opposed as bad and unecessary, but which the Congressional tax scorers call a "revenue raiser," making it an irresistable "pay-for."
Even the Virginia Tech thing is bad policy. Certainly the families of the victims deserve sympathy, but do they deserve it more than, say, the families Omaha Mall shooting victims? Or the family of the teenager who was stabbed in Des Moines this week? If Congress wants to help murder victims, they should write a tax law treating murder victims right to begin with, rather than narrow publicity stunts to ride the headlines.
IS THERE A SOLUTION?
Advocates of various tax elixirs say their plan will keep Congress from diddling with the tax law. That's fantasy. For example, a 30% national sales tax would make the lobbying game an even more high-stakes field than it is now.
Two things would help things get better. One would be an awareness that every tax break comes with a cost. Each tax break adds complexity and takes money out of the pockets of the majority of taxpayers who don't qualify. If politicians promising tax breaks were properly identified as picking your pockets on behalf of some lobbyist, maybe they'd keep their fingers to themselves.
The other thing that would help would be adults in key policy positions - Treasury Secretary, and chairmen and ranking members of the tax policy committees. If they did their jobs, they would be looking out for the interests of the rest of us against those who are constantly trying to take our money through targeted tax breaks. So much for any hope there.
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The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
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