Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Taxes aren't sole solution to closing rich/poor gap

- by Alan Duvall 

Published in Dayton Daily News   December 10, 2006 

“And if I win election day, I’ll sign the bill to help the poor to show I’m not snob.”  The Byrds. 

Well, the Democrats took control of Congress and have announced it’s time for some tax changes.  What can we expect? 

The Democrats’ ultimate objective is to reverse perceptions of a growing divide between America’s rich and poor.  The issue is how far tax policy can carry us toward greater equalization. 

The major beast Democrats intend to slay is the insidious Alternative Minimum Tax.  Not only illogical in concept, the tax is also an unsuspecting trap ensnaring its victims.  Contrary to original intent to punish only wealthy taxpayers, it has been estimated 23 million individuals, mostly middle-class, will feel its bite in 2007.   

But here's the problem: How to pay for the approximate $100 billion annual revenues lost from the tax's repeal.  Legislative sentiment seems to lean towards a tax increase for the wealthy by a combination of higher rates and partial roll-back of beneficial capital gains and dividend tax breaks.  Increasing the Social Security wage limits has also been suggested.

Pragmatic legislators realize such tax increases are naturally unpopular and will have to survive a potential Bush veto.  Therefore, it may be politically more manageable for Congress to simply allow certain tax benefits to expire on their own.   

Unless renewed by Congress, many Bush tax breaks such as the sales tax and certain education expense deductions die in 2006.  Other tax breaks have expiration dates for future years stretching into 2010.  

Plans for total estate tax repeal are in the death rattle stage. 

A more likely solution is a bi-partisan compromise for an enlarged exemption politically marketed to favor small businesses and farmers. 

Ultimately, the rich-poor dilemma is an economic function of employment. 

Our modern economy compensates highly-skilled laborers possessing modern technological skills at the expense of lower-skilled workers whose jobs are shipped overseas. Thus, universal access to higher education is wisely viewed as a very effective path for bridging the rich-poor divide.  As a result, look forward to a prospective expansion of education tax breaks. 

“I have seen the writing ...you’re just another brick in the wall.”  Pink Floyd

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.