The New Year in Taxes - New York Times
The New York Times
December 30, 2005
The New Year in Taxes
A surprise awaits the nation's highest earners when they file their 2006 tax
returns. Their taxes are going down again - whether or not Congress passes
the investor tax cuts the lawmakers have been promising. On New Year's Day,
two additional tax cuts will kick in, allowing people who earn upward of
a year to claim bigger write-offs for a spouse, their children and other
expenses, like mortgage interest on a vacation home.
The bolstered write-offs were enacted in 2001, but with a delayed start date
because of their high cost: according to Congressional estimates, the new
will cost $27 billion over the short term, exploding to $146 billion from
2010 through 2019. By then, most of the benefits would flow to taxpayers who
make more than $1 million a year.
With the nation deep in debt, at war in Afghanistan and Iraq, with Congress
voting last month to slash programs for health care and student loans, and
a debilitating shortfall building in Medicare - the decision by Congress to
let these particular tax breaks take effect now is flabbergasting. But it is
not out of character.
The Bush family has a long history with this particular part of the tax
code. In 1990, the first President Bush - in a move that now seems quaint in
sense of responsibility - had to raise revenue to rein in the budget
deficit. He was loath to hike the top tax rate, then 31 percent. So he opted
for a provision that limited the amount well-heeled Americans could deduct
from their taxes for a spouse and dependents, and for certain expenses, like
vacation home mortgages. Tax cutters in Congress, known then as
supply-siders, were furious.
The second President Bush has been guilty of irresponsibility and fuzzy math
when it comes to taxes, but rescinding his father's reasonable legislation
was not among his priorities. During his first year in office, however, he
set off a tax-cutting frenzy when he proposed to give back the Clinton-era
surplus via hundreds of billions of dollars in tax cuts. Congress then added
some cuts of its own - including a provision to revoke the limits on
put in place by the elder Mr. Bush.
The provision's effective date was set for Jan. 1, 2006, and, like other tax
cuts from 2001, it is scheduled to expire at the end of 2010. Such
and "sunsets" are ploys to cram as many tax giveaways as possible into one
law without overtly busting the budget.
Here's where the tale turns absurd: The tax cuts of 2001, followed by those
of 2002 and 2003, have busted the budget. The surplus - the original
for the tax cuts - is long gone, replaced by a deficit projected to reach
$530 billion by 2015, if the cuts are made permanent.
And yet Mr. Bush and Congress persist with tax cuts - for people who don't
need the extra help and for purposes that have nothing to do with the
It's a heck of a way to begin the new year.
Posted by Miriam V.