The Expiring Tax Cut

investmenttool.com Opinion

In typical Washington style, the United States Congress sent a tax cut to the presidents desk that though it has many virtues is idiotic. The tax cut that expires. This is about as bad a way to structure a tax cut as you can.

The tax plan takes a full decade to make its rate adjustments and end the death tax. When tax rates and structures change, people change their behavior. They delay making decisions that might be more beneficial if made in the future.

The best part is the death tax, if you like laughs. The death tax gradually is lowered to zero in 2010. Then in 2011 when the rest of the tax cut expires, it is back. If things stay as they are, a lot of old people better get security guards in late 2010.

So why did congress write such a tax bill? Because they thought they could fool us. They wanted the total cost of the tax bill to be calculated over a decade. If your project the cost of the bill longer than that, the tax bill quickly expands to $3 Trillion.

The Republican leaders in Congress think they can make the tax relief permanent. They have threatened to attach an amendment to such to any bill that moves in either house. The problem is Tom Daschle wants to spend money on lots of liberal spending programs. So, count on him to do anything he can to let that tax bill expire.

Ten years is a long time, and chances are there will be more tinkering with the tax bill. If the economy picks up the surplus will get bigger and the Republicans might have the moral weight to make the tax bill permanent.

More likely than that, some time next year after Social Security reform fails someone will want to simplify the tax code, like they did in 1986. The tax reform act of 1986 did simplify tax preparation for millions of lower income Americans. For the rest of us, it made tax software an essential part of tax season.

Wouldn't it have been better to pass the bill, make it permanent and move on to tax reform? Sure, but that view is based on the world of common sense. The borders of the world of common sense are clearly demarked by the Washington beltway.

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Shmuel Protter
investmenttool.com

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