In the never ending battle over taxes, President Obama is lobbying for a 28% limit on some of the deductions we can take on our personal tax returns. These changes would be in addition to the changes that took effect with the hastily passed bill that Congress approved in the 11th hour on January 1, 2013.
A few issues are at play here. First, many feel that taxes have risen enough on individuals and therefore, no additional tax hikes should be enacted. Some feel the “carried interest” rule, the rule that allows an investor such as “the wealthy” to pay tax on their unearned income at a very low rate. A mere 15% instead of 39.6%, this needs to be adjusted so an investor such as “the wealthy” pays their fair share. Still, others feel that it’s time to go after American corporations, 25+% of which pay NO income tax, and the many other domestic corporations who stash their money overseas to avoid paying tax at the domestic rate of 35%
But President Obama and the Democratic Congress don’t want to stop there. They are proposing changes to what individuals can deduct on their personal tax returns including mortgage interest, charitable contributions, IRA and 401(k) contributions, and deductions for state and local income taxes. Most of these changes would affect those in the top bracket of 39.6%, or the so called 1% who have seen their taxes rise with the recent re-election of President Obama and the constant haggling between the White House and Republicans.
Herein lies the main problem: Lobbying in Washington, DC is a multi-million dollar per year business. The real estate lobby is pushing hard for no changes to the current rule which allows writing off interest on mortgages of up to $1 million; including interest on 2nd homes. The real estate market is finally rebounding from the crisis of 2008, and any change here would risk growth in this very fragile market. Lobbying by the 401(k) benefits industry claim that a 28% cap could severely impact retirement savings, and the charity lobby fears that the neediest communities will suffer drastically if families donate less to charity due to limited deductibility.
I am afraid this tax battle will never end, and no matter what happens, some people are going to get hurt by any change. We should continue to attempt to better utilize current revenues while exploring the best way to close loopholes that exist in our archaic tax system. Complete overhaul is impossible, but steps should be taken to modernize the system going forward.
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With more than 25 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.