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Sunday, July 25, 2010

Tax Foundation Tax Calculator - Effect of 3 Different Scenarios

The Tax Foundation has an interesting tax calculator that will compute your 2011 federal income taxes under three scenarios:
  1. Bush tax cuts expire
  2. Bush tax cuts extended
  3. Obama tax proposals enacted

I roughed out my 2011 information and found that I'd pay about $4,000 more under Scenario 1 than under Scenario 2, but almost $1,000 less under Scenario 3!

Well, given that each citizen's share of the $13 trillion national debt is about $43,000, looks like I'm getting off easy with the intended expiration of the tax cuts! But then, most people will get off easy until we have the "tough love" I've been talking about. We can't keep enacting tax breaks, increasing spending and hope that somehow we'll get back into better fiscal shape and the debt and deficit will go away.

I encourage you to try out the tax calculator not just with your own income figures, but also with ones that are smaller and ones that are over $250,000 of income to see the differences.

Given recent history where it is mid-July and provisions that expired at the end of 2009 that Congress wants to extend have not yet been extended, I think it is unlikely that Congress will act timely to extend any of the 2001/2003 tax cuts. Of course, they might get to it in 2011 and we'll go many months not knowing what the real 2011 rules will be.

What do you think - about the prospects of Congress acting timely on the expiring tax cuts (whether to extend any or to decide that they will let them expire), about whether any should be extended, or any other changes that should be made for 2011?


Monica Lawver said...

I always enjoy your blog. As you recently wrote: "Despite some talk of reform, the benefit of the long time period between 2003 and 2011 was not used wisely to address fundamental reform/improvement of our overly complex tax system and it just seems to get more complex with every new tax bill and those tax bills keep coming."

I still believe we won't see major reform until the tax community as a whole gets behind something. Someone has to really be pushing for it. What do you think our best hope is? Is there any proposal we could get a majority of tax professionals behind?

Professor Nellen said...

Hi Monica,

Thanks for the comment. Perhaps the most likely thing the tax community might get behind is a broader base and lower rate. But I'm afraid that even that raises concerns for lost business by some preparers and a challenge of getting past the reality that for the past several years we've had a culture change where voters seem to only want to elect people who promise tax cuts.

What do you think?