Why Tax Filing Will Be Worse Than Usual
THE NANCY PELOSI-HARRY REID Congress is preparing a parting gift for us: a 2011 tax-filing season fiasco at least as trying as the one in 2007.
It's already fairly certain that 2010 tax refunds for millions of filers will be delayed by many weeks, because Congress is waiting so late in the year to patch the alternative minimum tax to prevent it from snagging 20 million to 27 million new taxpayers.
Circumstances might become more taxing if Congress doesn't reach a deal on the extension of the low Bush brackets—35%, 33%, 28%, 25%, 15% and 10%.If the Bush brackets expire, withholding taxes in tax-year 2011 would shrink paychecks across the board, literally taking away milk money for families in the $40,000 range. The new brackets would be 39.6%, 36%, 31%, 28% and 15%.
BILL AHERN, A SPOKESMAN for the Tax Foundation, reminded me last week that Congress waited until just before its Christmas break in 2007 to pass an AMT patch for that year. What happened? The IRS needed about 11 weeks to reprogram its computers to reflect the changes, which delayed filings and, consequently, some refunds. Once again, it looks as if Congress will wait until the last minute.
The first issue Senate Majority Leader Harry Reid will tackle when Congress returns from the Thanksgiving holiday is food safety, which could eat up the entire week. There are only four weeks left on the 111th Congress' legislative calendar. On top of this, members of Congress who lost their seats or who are retiring or moving up in seniority are expected to be packed up and ready to move from their Capitol Hill offices the first week of December. Under such circumstances, how much serious work can they get done?
Reid hasn't scheduled any action on taxes yet, which is worrisome. If tax legislation is to move quickly, it will start in the Senate, not the fractious House. How, you may wonder, can the debate begin in the Senate, given that the Constitution requires all revenue proposals to originate in the House? Because the Senate is sitting on five unrelated tax measures from the House, any of which could be amended with AMT language and/or Bush tax-cut language, according to GOP lobbyist Richard Hohlt. The Senate could pass the amended bills, then send them to the House for a concurring vote.
There is no doubt Congress will enact an AMT patch. Otherwise, between 20 million and 27 million middle-income people will be snagged by the higher tax this year. The pitchforks would be out—again! But passing a patch just in the nick of time has real-world consequences. IRS Commissioner Douglas Shulman, in a Nov. 5 letter to several members of Congress, warned, "If an AMT patch is not enacted until late this year, it is likely that the IRS would need to delay the ability of millions of AMT taxpayers to file their returns and access any refunds that may be due." Shulman further warned that if the 111th passed the buck to the 112th, which would have to fix the AMT retroactively, then collections would be totally gummed up.
Congress has known all year that it needed to address both the AMT and the Bush tax cuts. However, House Speaker Pelosi and Senate Leader Reid postponed the debate due to party politics. Neither could convince enough Democratic colleagues to buy the Obama administration's class-warfare rhetoric and hike taxes on the wealthy while keeping them at current levels for everyone else. Pelosi and Reid dared not hold a vote on the matter for fear it might inadvertently give the GOP a significant legislative victory ahead of the midterm election.
Post election, you have to wonder how they can possibly hold together a caucus that includes more than 60 members swept from office by an angry voter backlash sparked by the policies of the leadership.
MEANWHILE, BACK IN THE REAL WORLD, payroll departments are awaiting word from the Treasury on the exact amount of taxes they will be required to withhold from employee paychecks in 2011. The tables generally are released in mid-November, but they are being held this year because of the unresolved issue of the Bush tax cuts. Experts have been predicting that at some point the Treasury will have to assume the Bush tax cuts expire and issue new tables, because payroll departments require two to three weeks on average to program their computers with new data.
But the Treasury doesn't seem hurried.
"We understand that businesses and payroll processors need at least a few weeks to implement new withholding tables, and we are hopeful that Democrats and Republicans in Congress will work together to extend tax cuts for 98% of American families and provide the middle class the tax relief they need in these tough economic times," said Treasury spokesman Sandra Salstrom.
Hope? Democrats and Republicans in the 111th haven't worked together in two years. Why assume a Kumbaya moment now? My advice: Assume the worst, and take some profits and income in 2010. And plan for less take-home pay in the first part of 2011.
Source: Article written by Jim McTague, http://online.barrons.com, 11/27/2010