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May 3, 2012

“Don’t tax you, don’t tax me, tax the fellow behind the tree!”

The above quote of Senator Russell Long of Louisiana was from Eric Pianin’s April 27, 2012 article in The Fiscal Times.  The article is a good discussion of how difficult it will be to achieve tax reform.  “…once…tax breaks become part of the law, it is like pulling teeth to get them out of there. “  Many of the largest deductions are the most popular.  These include deductions for: home real estate taxes, employer-provided health insurance, home mortgage interest, capital gains rates, and contributions to qualified retirement plans such as 401(k) plans.   These will be politically difficult to eliminate. 
Treasury estimates that the deductions and credits total about $1.3 trillion.  Eliminating these deductions and credits would increase taxes collected by $1.3 trillion.   Some of the proposals would reduce rates to reduce the taxes collected.  This would result in the same net tax collected.  For those that incur expenditures that are now tax deductible or qualify for a credit will see their household expenditures increase. 
There seems to be agreement that our business tax rates need to be reduced to improve our global competitive position.  This would also reduce the taxes collected.
Tax planning for 2012 will require more effort because of the many possible changes to the tax laws.  There is not enough time and energy to resolve these issues before the election.  It is not possible to know what the lame duck Congress will do.   Start to identify your tax strategies in September.  Separate the strategies that can be implemented by December 31, 2012.  Establish a time line on when each strategy needs to be made.  This will permit you to know a when a decision needs to be made that can be completed in 2012

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