As the lame-duck session of Congress starts to heat up, debates will rage over which tax cuts and credits to keep, which laws to try to ram through and how best to slap unethical members of Congress on the wrist so as to not really impose anything resembling punishment while appearing to not tolerate corruption. It’s a full plate.
There was a time in this country, not so long ago, when a debate over how much of our money we’re allowed to keep would’ve been laughed out of the zip code, if not chased out with torches and pitchforks, but that’s the world in which we now live. The “Bush tax cuts” are set to expire at the end of the year and, if they do, everyone will see their taxes rise. So it’s not so much an extension of the Bush tax cuts as a postponement of the Obama tax hikes.
The current Congressional leadership is set to expire soon after the tax cuts. While Congress decides our financial future, the voters have decided their professional fate. But they aren’t done deciding our fates. One last hurrah on their way out the door…
Aside from the increase in tax rates waiting around the corner, there are a lot of credits going the way of the dodo as well. The child tax credit is set to be cut in half, from $1,000 to $500. So if you’ve got children, it could become more expensive for you.
If you don’t have children, you may not care about that, just like if you don’t own a small business, family farm or have a lot money, you may not care that the death tax is about to return with a vengeance, going from zero to 55 percent.
Most Americans are only aware of the taxes that impact their paychecks. But other taxes have consequences that will impact all Americans — even something as obscure as a biofuels tax credit that keeps all of our gas prices down. But make no mistake about it, if the “Bush tax cuts” expire at the end of the year, there will be consequences for everyone.
A childless man who works for a small business that grosses $500,000 owned by woman with three children may not care that his boss is going to not only see $1,500 of his tax credit disappear or that her tax rate is going to increase from 35 percent to 39.6 percent, but that could be the difference between being able to afford to keep him as an employee or not. Quickly a “screw the rich” attitude becomes a game of Russian roulette.
This is but one of the unintended consequences of the government picking and choosing winners and losers in the tax code. A flat tax would eliminate the year-to-year uncertainty businesses face when it comes to figuring out how much of their earnings the government is going to seize, and would free them to make moves based upon their production, not how much of that production they have to cede to Uncle Sam. But politicians love to play favorites, regardless of how harmful doing so is. It’s the basis for the majority of lobbying, which is key to their fundraising.
Gas prices are high because government, under pressure from left-wing so-called environmentalists, makes drilling more difficult to do than winning money if you pull Paris Hilton in your office’s Celebrity Jeopardy pool. To incentivize production of the gasoline substitute ethanol, the government creates tax incentives to farmers to produce corn to make it. It’s a government solution to a government-created problem.
Ideally we’d be able to drill where the oil is and grow food to eat, but that’s not how our government works. So while gas prices are higher because of it, they are lower because of tax credits. It’s a dual bastardization of the market. But some tax credits for ethanol producers are about to expire at the end of the year, just like the Bush tax cuts. The Volumetric Ethanol Excise Tax Credit (VEETC), which is a credit of $0.45 per gallon of pure ethanol blended into gasoline, is about to expire. You might think, “Good, stop subsidizing ethanol,” and I would agree with you…to a certain extent.
Just like with individual tax rates, as long as government is going to be playing games with the tax code and interfering with the market and impacting our lives, it should not do anything right now that will increase costs to consumers. Until complete, common-sense, market-based reforms of our tax code are implemented, Congress should not eliminate any credits; be they for anything from children to ethanol.
Everything from your job to your ability to afford to drive to it may be impacted if Congress fails to extend the current tax laws beyond the end of the year. As unappealing as it may seem, it’s better than the alternative of doing nothing. And it is the best we can hope for from this lame-duck Congress.
Derek Hunter is a Washington based writer and consultant. He can be stalked on Twitter @derekahunter