The new year brought a new tax deal, stock market pops, and lots of excitement.
I will start right off by admitting I was surprised at both the ability to get any deal this quickly, and the added goodies that were put into the tax code. I had originally guessed a deal would come in March (or later) and that
- income tax rates would stay the same for 250k incomes and less and rise for everyone else
- capital gains tax rates would rise for everyone to 20%
- dividends would get 20% treatment at best if not go back to income tax rate treatment
- estate tax limit would come in around 3-3.5M
What really happened was this:
- Income tax rates stayed the same for those under 400k
- capital gains tax rates stayed at 15% for everyone under 400k, dividends the same
- estate tax limit at 5M indexed for inflation
- IRA RMD charitable provision is back for 2012 and 2013 (QCD)
- AMT permanent fix – indexed for inflation
- inflation adjusted IRA contributions!
- other little goodies here and there including bonus depreciation extension for business property purchases
(Nice summary located here: CCH ATRA 2012)
Our Debt Problem and How I’d Approach It
Overall, I was surprised, and even though I fear our debt problem, i didn’t like the tax uncertainty. It makes me think that perhaps spending cuts should come in a way that makes sense for everyone, and in a way that can be negotiated without rhetoric.
I believe it’s a serious problem – and it won’t seem that way, UNTIL IT DOES. Which means simply that problems don’t surface to the front pages until it’s too late. However, if these folks in DC could accomplish multiple small spending cuts -for example – closing some military bases in Europe for some kind of savings (maybe $2-3 Billion?) – would be the way to do it. Go line by line and make incremental cuts and keep working at it. I prefer they spend a lot of time on this rather than incrementally decimating the bill of rights with all these new provisions that permit unlimited detention of US citizens and allowing military deployment on US soil in civilian areas.
Too many of those rules are leaving our country to the whim of “executive orders*” and that’s NOT HOW the country was founded. 3 Branches of government, along with their checks and balances, were created (along with the many processes that people now seem to deplore like the filibuster rule) for YOUR PROTECTION. Throughout history, it wasn’t a criminal or a terrorist that caused the greatest misery. It was out of control government, with excessive powers, in the hands of either a megalomaniac (current eg. North Korea**) or a slightly deranged fellow who experienced an unfulfilled childhood (Hitler) that caused the most pain. See video here for a particularly tragic North Korean Story:
**When you disagree with a government that holds power over you (you think this happens overnight?)
Therefore, in that vein, I don’t mind the gridlock and the arguing in DC. But also, I know that with these issues, if taken in smaller steps, could be accomplished more cordially. Spending cuts may need to take that road. because when all lumped together, a majority can find things they don’t like. When separated into pieces, it’s likely only a minority faction would protect each element and lose a challenge. This flies in the face of old US politics as one plump congressman after another would add small spending items to unrelated bills and passed easily because the main bill was favored.
So let’s welcome the fact that there is debate on this issue, even fighting (not the first time). Let’s allow the process to work or not work and let’s hope that they do spend more time discussing individual budget items than wrecking our liberties.
I can report though that this idea might have gotten off to a bad start as a number of little “goodies” ended up in the tax bill. let’s hope for the best but prepare for the worst.
*Final Note – i.e. Rant
For a couple of examples of “wonderful” executive orders by everyone’s “favorite” president (and one of the most historically romanticized) check these out:
Sorry but with one over glorified fool (sorry I am just not a fan of the guy for many reasons, and certainly not the way he was fashioned into an object of worship by later generations) drafting over 3000 executive orders in the time between these two orders (that’s a lot in one decade) and with many of them being as or almost as ridiculous, do you really want people like him in charge of your personal freedoms?
Do you want anyone in charge of your personal freedoms? Our founders didn’t, but for some reason, many people today DO – as reflected in their antipathy toward the legislative destruction of Constitutional rights by both our current and former president and Congress.