Tax Legislation Compromise: Uncertainty Rules
An article in today's Wall Street Journal points out that the proposed tax legislation compromise continues a recent pattern of "uncertainty." The key point is that the legislation is temporary. For example, if the Bush tax cuts are retained, as now seems possible, that would only apply to 2011 and 2012.
The most striking statistic was that in the 1990's there were less than a dozen tax provisions that had to be renewed (or rejected) every year or so. Now there are 141 and counting.
The main problem here is that the uncertainty growing in the tax code makes it hard to plan. For example:
The estate tax still awaits final proposed legislation. What will the exemption be? It was $3.5 million a couple of years ago. Next year, it's scheduled to drop to $1 million. This year there was no estate tax at all!
Corporations plan too. They're also currently holding the largest cash balances in anyone's memory. The theory is that corporations are reluctant to spend the money they've made because they simply don't know what their tax liability might be in the coming years. So they're holding off on hiring, or investing in new businesses, or building up their current businesses because of the uncertainty in the tax code.
So what do you do?
Well, a smart attorney I know recently sent out an e-mail explaining that - at least when it comes to estate planning - you keep your plans flexible. I've been saying this for a few years now, and it works. It does take a little creative thinking, but it's not rocket science.
As for corporations, I'm not convinced that they're not hiring because they're uncertain about the tax situation. I think that not hiring has more to do with 1) uncertainty about the economy's supposed recovery 2) the ever-increasing government regulations that make having employees more and more of a pain in the neck. So if you don't have to hire, why bother?
As for getting into new businesses, or building up their current business, these decisions are primarily driven by business logic, not just tax uncertainty. I would say, however, that in a marginal case, where you're thinking of taking a risk on a new idea or expanding in the hope that things work out, the tax uncertainty might sway that kind of decision. It might be the straw that breaks the camel's back.
So what's causing all this indecision and these temporary measures by Congress? Some say its all the partisan bickering that seems to dominate politics today. I would guess that's part of the problem.
But I also wonder whether the very way we do everything today might not lend a hand in making it harder and harder to just make decisions. In a world dominated by text-message communication, no one really commits to anything even on the smallest level anymore. Just look at your kids and how they get together these days. It's all a kind of spontaneous "on-the-run" sort of thing. No one just says, "Let's to this at such-and-such a time and meet in such-and-such a place." I have to believe this is seeping into our whole way of doing things, don't you think?
Of course, there's always the possibility that our legislators simply want to keep their options open at all times these days. After all, what happens if we don't continue on the road to recovery? What happens if tax dollars continue to dwindle as they are in areas like real estate taxes (home values plunge, taxes on that home plunge), payroll taxes (higher unemployment, less payroll tax collected), lower sales tax (less sold, less tax collected), corporate tax (less business, less revenue, less profit, less to tax), and on and on.
But really, can't these guys (and gals) just make up their minds so we can all get on with our lives? And if they have to address the situation again, because circumstances change, then just do that, right?
Well, I shouldn't complain. I never bought into all that chatter about telling your clients to take all their capital gains this year because capital gains taxes were going up next year - along with all the other tax advice the experts were publishing this past year. I just didn't trust politicians enough to rely on their ability to make a timely decision - never mind a sound decision.
The most striking statistic was that in the 1990's there were less than a dozen tax provisions that had to be renewed (or rejected) every year or so. Now there are 141 and counting.
The main problem here is that the uncertainty growing in the tax code makes it hard to plan. For example:
The estate tax still awaits final proposed legislation. What will the exemption be? It was $3.5 million a couple of years ago. Next year, it's scheduled to drop to $1 million. This year there was no estate tax at all!
Corporations plan too. They're also currently holding the largest cash balances in anyone's memory. The theory is that corporations are reluctant to spend the money they've made because they simply don't know what their tax liability might be in the coming years. So they're holding off on hiring, or investing in new businesses, or building up their current businesses because of the uncertainty in the tax code.
So what do you do?
Well, a smart attorney I know recently sent out an e-mail explaining that - at least when it comes to estate planning - you keep your plans flexible. I've been saying this for a few years now, and it works. It does take a little creative thinking, but it's not rocket science.
As for corporations, I'm not convinced that they're not hiring because they're uncertain about the tax situation. I think that not hiring has more to do with 1) uncertainty about the economy's supposed recovery 2) the ever-increasing government regulations that make having employees more and more of a pain in the neck. So if you don't have to hire, why bother?
As for getting into new businesses, or building up their current business, these decisions are primarily driven by business logic, not just tax uncertainty. I would say, however, that in a marginal case, where you're thinking of taking a risk on a new idea or expanding in the hope that things work out, the tax uncertainty might sway that kind of decision. It might be the straw that breaks the camel's back.
So what's causing all this indecision and these temporary measures by Congress? Some say its all the partisan bickering that seems to dominate politics today. I would guess that's part of the problem.
But I also wonder whether the very way we do everything today might not lend a hand in making it harder and harder to just make decisions. In a world dominated by text-message communication, no one really commits to anything even on the smallest level anymore. Just look at your kids and how they get together these days. It's all a kind of spontaneous "on-the-run" sort of thing. No one just says, "Let's to this at such-and-such a time and meet in such-and-such a place." I have to believe this is seeping into our whole way of doing things, don't you think?
Of course, there's always the possibility that our legislators simply want to keep their options open at all times these days. After all, what happens if we don't continue on the road to recovery? What happens if tax dollars continue to dwindle as they are in areas like real estate taxes (home values plunge, taxes on that home plunge), payroll taxes (higher unemployment, less payroll tax collected), lower sales tax (less sold, less tax collected), corporate tax (less business, less revenue, less profit, less to tax), and on and on.
But really, can't these guys (and gals) just make up their minds so we can all get on with our lives? And if they have to address the situation again, because circumstances change, then just do that, right?
Well, I shouldn't complain. I never bought into all that chatter about telling your clients to take all their capital gains this year because capital gains taxes were going up next year - along with all the other tax advice the experts were publishing this past year. I just didn't trust politicians enough to rely on their ability to make a timely decision - never mind a sound decision.
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