Tax and Spend Tuesday, a roundup of news, views and policy proposals affecting your paycheck and pocketbook.
Bye-bye tax cut? Remember President Trump’s 2017 Tax Cuts and Jobs Act? The largest overhaul of the tax code in three decades created a single (permanent) corporate tax rate of 21% and, in most cases, lowered the rates in the seven individual-income tax brackets. The tax benefits for individuals and families are set to expire in 2025. H&R Block reports the average tax cut was approximately $1,200, based on the returns it processed for 2018. The move also was a learning moment for many Americans who then complained about smaller refund checks from the IRS. Remember how you had to explain? You’re getting more in your paycheck because the Tax Man is taking out less and getting less as a refund because the Tax Man withheld less from your paycheck.
Well, there’s a new sheriff in town. President Biden is planning for the first major tax hike since 1994 to help pay for his next economic package, The Washington Post reports, citing Bloomberg News. According to Bloomberg, “Key advisers are now making preparations for a package of measures that could include an increase in both the corporate tax rate and the individual rate for high earners. … While the White House has rejected an outright wealth tax … the administration’s current thinking does target the wealthy. The White House is expected to propose a suite of tax increases, mostly mirroring Biden’s 2020 campaign proposals, according to four people familiar with the discussions.”
Who’s “wealthy?” “Biden’s Planned Tax Hike to Hit People Earning Over $400,000 Hardest,” according to one headline. What is the current rate for people with taxable income over $400,000? Between $400,000 and $600,000, it’s 35%.
“For the Biden administration, the planned changes are an opportunity not just to fund key initiatives like infrastructure, climate and expanded help for poorer Americans, but also to address what Democrats argue are inequities in the tax system itself,” the Los Angeles Times reports. “The plan will test Biden’s capacity to woo Republicans and Democrats’ ability to remain unified.”
Fact-check: “The tax system is definitely inequitable, by design. Contrary to Democrat talking points about a ‘fair share,’ high earners already pay the vast majority of taxes,” Nate Jackson points out in a column that includes a link to a Heritage Foundation article with the chart shared. (right).
Banning tax cuts? From the Tax Foundation: “Senate amendments to the American Rescue Plan Act prohibit using any of the $350 billion in State and Local Fiscal Recovery Funds to cut taxes, but many are concerned that states which accept the funds could be prohibited from implementing tax cuts between now and 2024 – an astonishing level of federal interference in states’ fiscal affairs. Is this alarm warranted? It’s complicated, but state policymakers have reason to be concerned.”
Georgia responds: Capitol Beat reported that House Speaker David Ralston wrote last week to Treasury Secretary Janet Yellen, President Biden and Georgia’s congressional delegation pointing out that language in the $1.9 trillion stimulus package prohibits states from using any of the aid money to “either directly or indirectly” offset reductions in net tax revenue. Legislation under consideration in the Georgia General Assembly would give Georgians a tax cut of $140 million by raising the standard deduction on state income taxes; another would extend a tax credit for families who adopt a child out of foster care.
IRA contributions: Taxpayers “of all ages” may be able to claim a deduction on their 2020 tax return for contributions to their Individual Retirement Arrangement (IRA) made through April 15, 2021. There is no longer a maximum age for making IRA contributions. An IRA is designed to enable employees and the self-employed to save for retirement. Most taxpayers who work are eligible to start a traditional or Roth IRA or add money to an existing account. Source: IRS.gov
IRS payments: The IRs told financial institutions to expect roughly 90 million direct deposits amounting to $242.2 billion in the initial distribution of American Rescue Plan stimulus payments on March 17, The Washington Post reports. Following the deposits, the IRS mailed an additional 150,000 checks amounting to $442 million, with a pay date of March 19, the newspaper reports, citing an IRS briefing to the Independent Community Bankers of America. This stimulus package (the third) provides direct payments of up to $1,400 for individuals, $2,800 for couples and $1,400 for each dependent, regardless of age, but does not apply to taxpayers whose adjusted gross income exceeds $80,000 if filing single or married people filing separately, $120,000 if filing as head of household or $160,000 if married and filing a joint return, or if filing as a qualifying widow or widower.
IRS deadline: The American Institute of CPAs wants the IRS to postpone the April 15 tax filing and payment deadline for the 2021 tax season. Among the points it makes: “The COVID-19 pandemic has created immeasurable hardship for millions of taxpayers and tax practitioners, making it incredibly difficult for them to meet the April 15th filing and payment deadline. The IRS must not overlook the impact the pandemic has had on this year’s tax filing season.”
“Extracting a larger toll from those who already bear the bulk of government’s cost will not balance the budget. It will make our economic recovery more painful.” – Adam Michel
“An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation.” – John Marshall (1819)
Compiled by Benita Dodd, vice president of the Georgia Public Policy Foundation.