Congress passed legislation to avert the “fiscal cliff” just hours into the new year, but whether the bill is better than no bill at all remains a subject of fierce debate.
National Taxpayers Union Executive Vice President Peter Sepp is not impressed with the final product or how Congress went about it’s work.
“Congress still had time to pass a better bill than this. They will say that this was the best deal that was politically possible. I think that had they gotten to this work sooner, even right after the election in more earnest, they might have come up with a better package,” said Sepp.
But Sepp does believe there are least a few bright spots.
“We obviously did secure permanent tax relief through the 2001 and 2003 laws for about 98 percent of Americans. We also permanently extended the so-called patch that protects about 30 million Americans from having to pay the dreaded Alternative Minimum Tax,” said Sepp.
But that’s pretty much where the good points end, according to Sepp.
He says the worst part is that Congress is clearly not serious about spending, since the Congressional Budget Office announced the bill adds $41 in new taxes for every new dollar in spending cuts.
“This is obviously the worst part of this legislation. Members of Congress decided they’re going to try and separate the spending side of the ledger question from the tax side of the ledger question,” he said. “People have a right to be cynical of whether Congress will ever be able to get to the important business of controlling expenditures and reforming entitlement programs after this. This is by far the biggest punt of a season’s worth of punting on fiscal issues.”
Sepp also says there’s a mountain of bad news in here too, even beyond the higher marginal, capital gains and dividend rates for wealthier Americans. Sepp says the worst part may be that the tax code is even more convoluted then ever.
“Couldn’t we have done better here, especially just reforming the system overall?” said Sepp, noting that while most people think capital gains rates are headed up to 20 percent for wealthier Americans, the real story is much more complicated.
“There will be several different rates. You’ll have zero percent, 15. 18.8, 20 percent, even 23.8 percent. And this makes an important point,” he said. “There’s going to be a lot more complexity introduced in the system because of this bill, especially for for higher-income earners. If you earn more than $450,000 as a joint filer, you’ve got a new income tax rate. More than $300,000? You’re going to start losing some of your itemized deductions. More than $250,000? You may have to pay a new surtax thanks to the 2010 health care law. You can bet the tax preparation industry will be busy at the next tax filing season.”
Sepp says the new bill not only further clutters the tax code but is the result of failed efforts to simplify it.
President Obama wanted to raise marginal rates on individuals earning more than $200,000 and couples making north of $250,000. Republicans argued that would be crippling for small-businesses that often file in the highest individual tax bracket. Sepp says now that those numbers up are pushed up to $400,000 and $450,000 respectively, small businesses will get a bit of a reprieve but not much.
“Moving this threshold up might take some of the edge, some of the sting out of the tax increases but it won’t entirely help job creators,” said Sepp, noting that the loss of deductions and the new health care surtax will apply to those businesses that file as individuals.
Despite the political rhetoric, Sepp points out all working Americans will see a tax increase because the two-year reduction in the payroll taxes expired in this legislation.
“That will be a surprise, an automatic two-percent reduction in most people’s paychecks, at a time when most folks are still skittish about the economy. Just look at the poor showing of the last retail shopping season for the holidays. This could not be worse timed,” said Sepp.
