Our Epic Planning Failure On Taxes
Posted by Carl from Chicago on October 7th, 2010 (All posts by
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This article in the WSJ titled “Delays to Tax Tables May Dent Paychecks” shows how our inability to plan is now impacting anyone who is running a business with a payroll.
Lack of congressional action on 2011 income taxes may force the Treasury Department to make unprecedented moves to prevent US workers from seeing large tax increases in their January paychecks. The issue: 2011 tax withholding tables. Treasury officials usually release the tables… by mid November because it takes payroll processors weeks to adjust their systems before January 1.
[My opinion is if the Democrats who ran Congress intended to extend tax cuts for most people they would have done it before the elections. Pushing the decisions off till after the elections is a sign they PLAN on sticking it to most voters. ]
If you look at your pay stub and all the complex deductions done by your payroll processor you can see that there is a lot of work behind those calculations, which are also impacted by the withholding that individuals select based on their filing status.
What happens after January 1 is that the tax cuts enacted under the previous administration expire and rates go up across the board, as well as impacting the Alternative Minimum Tax, capital gains, as well as the dividends received deduction (minimizing the double taxation of dividends). Unless Congress acts this year, which seems unlikely since they are all up for election, all these tax items automatically occur, although they could certainly be changed by Congress before the end of 2011 and other rates or policies put in their place.
Our tax policy now is totally unhinged when it comes to incentives. Are stocks that pay dividends going to be pummeled when the tax rate on dividends goes back up? You don’t know. If you live in the East or California in a high tax state and aren’t paying an arm and a leg in AMT, you may very soon if the taxes aren’t amended. The capital gain tax is more complex because many people are already betting that this will not be re-upped and cashing in their gains that survived the recent downturn in many cases anyways.
Don’t forget that this inability to plan is at the local and state level, as well. The State of Illinois, facing a huge deficit, decided to do nothing since elections are coming and just rolled the entire problem along to those that are elected next.
Really, I am a pessimist and I never thought that our tax policy at the Federal and State level would become so muddled. From an incentive and planning process it is making the lives of those who do this type of work extremely difficult to execute, and impossible to explain rationally to those that aren’t experts in the field. We have absolutely reached a new nadir.
1.David Foster Says:
October 7th, 2010 at 8:23 am
Even *within* the government…can you imaging working at the IRS and having to deal with the systems changes, expanation-writing, printing, etc, that is required by the things the congressional clowns do with basically no advance planning or notice?
2.shannon Love Says:
October 7th, 2010 at 10:53 am
The cause of current cluster-fudge is that left is caught between the rock of their reliance on Keynesian economics to justify the “stimulus” and hard place of their need to extort as much money as possible to pay off their patronage networks.
The one thing that Keynes said you must absolutely never do in an economic downturn was to raise taxes. Indeed, Keynes explicitly postulated that the government would use taxation to reduce economic activity when it got to high. Yet Democrats have spent the last two years licking their chops at the prospect of ending Bush’s tax cuts even though doing so makes no sense in terms of the economic theory they claim to be working from.
However, the Democrats entire raison d'etre is to take from the productive and give to the unproductive. There are few reasons for people to vote Democrat other than to get money for themselves or others. If the Democrats can’t ladle out the gravy they have no reason to exist and they know.
So they are stalled. They can’t borrow more, they can’t logically raise taxes but they can’t cut them either.
More generally, you are correct that this represents the kind of error that government is inherently prone to regardless of the ideology of the people in charge. Government operates not on well proven empirical knowledge like engineering but on simply horse trading between competing self-interest. Tax rates are set at any particular rate not because of some proven economic model but because of an accumulation of random events, e.g. scandals, 9/11, hear attacks etc empower one political block over another.
Government decision-making sucks. That why we shouldn’t use it casually.
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