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: Study looks at stock market performance of polarizing brands

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

Which foods may cost you more due to Calif. drought

20 hours ago

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 0

More news stories

Newlyweds, be careful what you wish for

A statistical analysis of the gift "fulfillments" at several hundred online wedding gift registries suggests that wedding guests are caught between a rock and a hard place when it comes to buying an appropriate gift for the ...

Can new understanding avert tragedy?

As a boy growing up in Syracuse, NY, Sol Hsiang ran an experiment for a school project testing whether plants grow better sprinkled with water vs orange juice. Today, 20 years later, he applies complex statistical ...

Roman dig 'transforms understanding' of ancient port

(Phys.org) —Researchers from the universities of Cambridge and Southampton have discovered a new section of the boundary wall of the ancient Roman port of Ostia, proving the city was much larger than previously ...

Crowd-sourcing Britain's Bronze Age

A new joint project by the British Museum and the UCL Institute of Archaeology is seeking online contributions from members of the public to enhance a major British Bronze Age archive and artefact collection.

Better thermal-imaging lens from waste sulfur

Sulfur left over from refining fossil fuels can be transformed into cheap, lightweight, plastic lenses for infrared devices, including night-vision goggles, a University of Arizona-led international team ...

Hackathon team's GoogolPlex gives Siri extra powers

(Phys.org) —Four freshmen at the University of Pennsylvania have taken Apple's personal assistant Siri to behave as a graduate-level executive assistant which, when asked, is capable of adjusting the temperature ...