Green Room

Tax Chaos

posted at 3:48 pm on February 2, 2010 by

Understandably, the raw numbers in Obama’s budget — both deficits and taxes — are receiving huge attention.

There is another aspect which makes the raw numbers even more pernicious. Many of the new tax increases are a function of the taxpayer’s overall income, such as caps on deductions for mortgage payments, state and local taxes, and charitable deductions, and the new 20-percent capitals gains tax bracket.

Tying these items to overall income creates uncertainty, since the value of the deductions and the cost of the capital gains will not be know until after the fact, when the taxpayer’s total annual income is calculated.

For someone on a strict salary, that may not be a problem. But for business owners, entrepreneurs, and those who live off of commissions and bonuses, annual income can be difficult to predict. These new tax provisions will limit the ability to plan.

Additionally, these new provisions will punish people who have highly fluctuating annual incomes, typically business owners and investors. The lost deductions and the higher taxes in one year cannot be recouped in less prosperous years. That is a problem now, but it is even more so under the new budget.

Into our already byzantine tax code is introduced a more serious element of chaos than previously existed.

If I didn’t know better, I would speculate that these tax provisions were designed by someone who didn’t have a clue as to how the private sector operated, who never ran a business, and who never took an investment risk with his own money.

Cross-posted with updates at Legal Insurrection Blog

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Reparations by tax code.

tarpon on February 2, 2010 at 3:54 PM

If I didn’t know better, I would speculate that these tax provisions were designed by someone who didn’t have a clue as to how the private sector operated, who never ran a business, and who never took an investment risk with his own money.

I don’t think Obama actually designed them, himself, no?

Daggett on February 2, 2010 at 4:01 PM

These new tax provisions will limit the ability to plan.

Conveniently, they also limit the ability of the CBO to score them accurately. Actual tax revenue always seems to fall short of projected tax revenue. People avoid extra taxes.

percysunshine on February 2, 2010 at 5:03 PM

They’re just working up to the day when they can simplify the system by having you turn over your entire check. THAT will be simple!

Sugar Land on February 2, 2010 at 5:22 PM

Shrug, baby, shrug.

Mew

acat on February 2, 2010 at 8:53 PM

Past time to do away with the income tax. Too bad a viable alternative isn’t available.

Browncoatone on February 3, 2010 at 7:19 AM