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Tax law seems certain to change: but how?

"It is not certain that everything is uncertain," said Blaise Pascal, the famous French philosopher, over 300 years ago. One wonders what he would say today, if he were faced with the question of American tax changes in the Age of the Fiscal Cliff.

The fiscal cliff refers to the combination of automatic federal spending cuts and tax increases set to go into effect next year unless Congress and the president act to avert them. The effect on income taxes for both individuals and business in Texas and across the country is sure to be considerable, no matter what happens

Much of the uncertainty concerns whether income tax rates really will come down. Uncertainty also abounds about what will happen to the economy, regardless of what steps lawmakers take.

It is possible that comprehensive tax reform could become part of an overall solution to the nation's budget woes. It remains to be seen whether a coalition for broadly reforming the tax code will emerge - and if so, what form the reform will take.

On the more specific questions, an example of the uncertainty is what to do about the payroll tax. Congress temporarily cut this tax for 2011 and 2012 as an economic stimulus tool. Many members of Congress, in both parties, seem willing to let the cut lapse.

But of course there are also other options. It is possible that Congress could extend the cut. Or, as New York Times columnist Ross Douthat suggested this week, the payroll tax could be eliminated altogether.

Douthat's proposal immediately elicited concerns about the viability of Social Security and Medicare, which are funded by payroll taxes. Critics quickly offered other possibilities for tweaking these taxes by using tax credits or tax exemptions.

All options are on the table. And uncertainty about the outcome will remain until a deal is struck or - another possibility - not struck.

Source: "Want to eliminate the payroll tax? Better find $12 trillion to replace it," Washington Post, Dylan Matthews, 11-26-12

1 Comment

Tax law is constantly changing, and there may be some big decisions being made in Congress this year regarding tax relief. Thanks for sharing.

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