I feel like taking a little break — two or three days —from international taxation.
Fortunately, there are even more important — at least in the medium term — tax topics. The most pressing tax issues today are presented by two time bombs in current law: (i) the sunset of the Bush tax cuts and (ii) the metastasis of the alternative minimum tax.
A few of President Bush's tax cuts for the middle class phase down starting at the end of this year. (Yes, there is an over $11 billion a year tax increase, born mostly by the middle class, that takes effect in January. The politics leading to this are discussed in Michael Froomkin's post, It's Cynicism All the Way Down, on July 22, below.) All of Bush's cuts in regular taxes expire at the end of 2010. The capital gains tax cuts expire at the end of 2008. (Dishonest budgeting is a topic for another day.) To extend all of these cuts from when they expire through the end of 2014 would cost at least $1.2 trillion. REALLY! $1.2 TRILLION! And breathtaking deficits are projected without an extension. This speaks for itself. (Or at least the silent political campaigns must so think.)
The second time bomb is the individual alternative minimum tax. This tax (in its current form) was enacted in 1986 to limit tax sheltering by the rich, but now is a misguided tax on the upper middle class, particularly those who live in states with high state and local taxes. For a good recent CBO report on this, go to CBO AMT Report . Bush's tax cuts (although not the revenue numbers noted above) contained some minimum tax relief, but it sunsets at the end of this year. Historically, less than 1% of all individual taxpayers paid minimum tax. Next year, 11.6 million individual taxpayers (about 13% of all such taxpayers) will pay over $35 billion in minimum tax. These numbers will almost double in the following decade. Something must be done, but there is no money…
My numbers come from the CBO, the Joint Tax Committee Staff, and the Tax Policy Center.