Fiscal cliff deal yields tax certainty at expense of simplification, expert reports

Jan 04, 2013 by Phil Ciciora
The fiscal-cliff bill passed by Congress settles most of the significant tax issues that would have an immediate and direct impact on the average taxpayer’s pocketbook, says Richard L. Kaplan, the Peer and Sarah Pedersen Professor of Law at the University of Illinois. Credit: L. Brian Stauffer

Although major battles over spending cuts and raising the federal debt limit have been punted for another two months, the fiscal-cliff bill passed by Congress settles most of the significant tax issues that would have an immediate and direct impact on the average taxpayer's pocketbook, a University of Illinois expert on taxation and retirement issues says.

The resolution of the fiscal cliff crisis postponed the day of reckoning for most of the sequestration-imposed spending cuts, but it did determine what the tax system will look like for individuals and businesses this year, says law professor Richard L. Kaplan.

"Perennial issues like the alternative minimum tax now have a permanent solution, while many extremely important tax parameters like the rate structure and the treatment of capital gains have been settled," said Kaplan, the Peer and Sarah Pedersen Professor of Law. "Congress can certainly revisit these tax questions in the future, but there is no longer any uncertainty or pending deadlines regarding the U.S. tax system for 2013."

Tax simplification, however, took a major step backward, says Kaplan, an internationally recognized expert on U.S. taxation and tax policy.

"Not a single deduction or credit was eliminated," he said. "Indeed, many new ones were added for specific industries and activities, like purchasing and extending a tax benefit related to Puerto Rican rum. Capital gains still receive preferential treatment, and the number of tax brackets has actually increased."

The new law does, however, provide both increased certainty and lower than if legislators had done nothing and simply let the Bush-era tax cuts expire. As a result, the government's will likely be larger than previously projected, Kaplan says.

"In addition, a variety of phase-out provisions that both complicate the code and raise effective tax rates were reactivated," Kaplan said. "To be sure, almost all of these convoluted new rules apply only to persons with income of at least $250,000 per year.

"Yet, despite all of the campaign talk about taxes paid by very wealthy individuals, this new legislation does not really address that issue. The Warren Buffetts and the Mitt Romneys of the world will see their effective tax rates rise, but their rates will still be well below the rates applicable to less wealthy people because the tax benefit is largely preserved."

Explore further: Tax benefits for housing not as outsized as previously thought, study says

add to favorites email to friend print save as pdf

Related Stories

Obamas Paid Too Much in Taxes, Says Tax Expert

May 17, 2010

(PhysOrg.com) -- President Barack Obama and first lady Michelle Obama paid too much in taxes last year compared with their peers in the same income group, says Dorothy Brown, professor of tax law at Emory University School ...

Roth IRA conversion not a good fit for all, tax expert says

Oct 26, 2009

Starting next year, anyone can convert retirement savings into tax-advantaged Roth individual retirement accounts, but the much-touted switch isn't for everyone, a University of Illinois expert on tax and elder law warns.

Recommended for you

The tyranny of realism in energy planning

Aug 20, 2014

A report exploring the political economy of energy planning under democracy and the Integrated Energy Planning (IEP) process due to conclude this year was launched by the British High Commission, Project ...

Organising is the key to efficient purchasing

Aug 19, 2014

A well-functioning purchasing organisation is a powerful tool for companies. Chalmers researcher Ingrid Hessel shows in her thesis that internal purchasing operations affects and is affected by relationships ...

User comments : 0