Friday, October 22, 2010
Freakonomics, What’s the Biggest Tax Mistake That Might Be Made This Year?
Consider the ingredients: a frail economy, a toxic political environment, looming hard deadlines and massive uncertainty in the business community — the perfect circumstances under which to write some great federal tax policy! But tax-code writing will be done — on the expiring Bush-era tax cuts, the estate tax, the Alternative Minimum Tax, capital-gains taxes and more.
So today ... we thought we’d do our part to help the government avoid mistakes. We asked some smart tax people a simple question: What’s the biggest potential tax policy mistake that might be made this year?
- William G. Gale (co-director, Urban-Brookings Tax Policy Center): "Policy makers have already made the biggest potential tax policy mistake they could have made this year. Ever since the tax cuts were enacted in 2001 and 2003, policy makers have known the law would expire at the end of 2010. That “drop dead” date offered an auspicious way to galvanize a systematic effort to reform a tax system that is badly in need of repair. Instead, policy makers pretty much ignored the issue until just before the 2010 Congressional recess, when politically tinged efforts to extend some or all of the tax cuts finally began — a “debate” that was too little, too narrow, and too late."
- Donald Marron (director, Urban Brookings Tax Policy Center): "With little time left on the legislative clock, policymakers will be hard-pressed to top the tax policy blunders they’ve already made this year. Most notable is their failure to decide what this year’s tax law should be. While politicians, analysts and the media endlessly debate how expiring tax cuts might affect taxpayers in 2011, the real disgrace is that we still don’t know what the tax law is in 2010."
- Joel Slemrod (professor of economics and public policy, University of Michigan): "The biggest possible mistake would be to lose sight of the long-term issues that surround tax policy. Given the depth of the recent recession as well as the slow pace and apparent fragility of the expansion, it is appropriate that the macroeconomic effect of tax policy changes be taken seriously. A big jump in the tax level could abort the delicate recovery."
- Clint Stretch (managing principal for tax policy, Deloitte Tax): "The biggest potential tax policy mistake for this year is the mistake of inaction. Individuals deserve a prompt resolution of a host of issues that make thoughtful tax compliance and planning difficult and, worse, invite costly mistakes. The fate of the Bush tax cuts should be addressed as soon as possible. A rush of mid-December tax-planning transactions is not desirable. An increase in withholding on middle class taxpayers in January could be harmful. Congress should address the extension of the patch for the alternative minimum tax to provide certainty for the nearly 25 million Americans. Taxpayers with large estates should be able to plan with reasonable certainty about the rules."