Another tax filing season looms. We
hear much discussion of the need for tax
reform to strengthen our weak economy.
Let's see how some proposals might affect
us:
Increased retirement plan contributions:
Increased retirement savings will reduce
workers' current tax burden, and defer tax
on retirement account
earnings until withdrawals
begin.
These retirement
savings may
increase capital
available to businesses.
But, this will also remove disposable
income from workers' pockets.
Unemployed workers won't benefit from
the increase. And, workers are uneasy
about investing more money in the stock
market.
Accelerate tax cuts scheduled to phase
in through 2010:
Some of the tax cuts passed in 2001,
scheduled to phase in later this decade,
should be more helpful if they take effect
sooner. These include stretching the 15
percent tax bracket, increasing the availability
of the Earned Income Credit, and
increasing the standard deduction.
Accelerating the increase in the Child Tax
Credit and the Dependent and Child Care
Tax Credit will help all taxpaying parents.
Other cuts don't appear to be as helpful in
the near-term. Eliminating the itemized
deduction and personal exemption phaseouts
won't help most taxpayers. One of
the most significant tax rate reductions -
the addition of the 10 percent bracket on
the first $6,000 of taxable income - is
already in effect. The other significant
reduction is targeted at the top two brackets,
and won't help most taxpayers.
Eliminating the estate tax will help relatively
few taxpayers, and may increase taxes
paid by heirs who sell inherited property.
Accelerate business write-offs for new
assets:
The tax saved by a business from faster
write-off of the cost of new equipment
reduces the net cost of the equipment.
This increases profits from the investment
- but only if revenues increase from use of
the equipment. Without increased consumer
demand, investment in new equipment
will be a losing proposition, even
with the tax savings.
A caveat: Tax cuts alone won't solve
our economic problems. Government
spending must become more efficient, and
focused on broad benefit. Let's hope those
make it into the picture soon!
John H. Mitchell, CPA, serves businesses
and individuals in Sparks and Reno.
