Wednesday, October 27, 2010

Bye-Bye Tax Breaks?

From CNN Money. Add this to the pile of discontent happening in 2011 and beyond.

"Tax experts almost uniformly say the next Congress should rethink the more than 200 tax breaks in the federal code that cost more than $1 trillion a year. And, yes, that includes even the really, really popular ones."


"For years, leading tax experts and economists from the left and the right have contended that tax breaks are, in reality, a form of spending. The cost of tax breaks is mostly invisible, since there's no formal accounting of them on Uncle Sam's books. And once passed into law, they are rarely scrutinized.

"Tax breaks are styled as tax savings, but really function as replacements for explicit government spending. Some make sense, but a great many are poorly targeted and would never pass Congress if presented as an outright spending proposal," tax expert Edward Kleinbard wrote in an article this summer called, "Sacred Cows: It's Them or Us."


"A disproportionate amount of the lost revenue from tax breaks comes from just five of them.

Not surprisingly, those five are also among the most popular:

* mortgage interest deduction;
* tax-free income workers get from employers to pay for health insurance;
* deduction for state and local taxes;
* deduction for charitable contributions;
* and myriad tax breaks for retirement savings.

Many of those breaks are only available to the roughly one-third of taxpayers who itemize deductions on their returns."

Whoa, Nellie! I DON'T itemize, but I take advantage of every single one of these tax breaks...AND I'M NO MILLIONAIRE! I don't even make 6 figures--I didn't have to (until now). If you live in America, or are subject to American tax law, this is what you may be facing next year and beyond. The Winter of Discontent is just a warm-up compared to what's coming!

Can you imagine how much MORE of your income would be subject to taxation with these breaks gone? This is how Obama plans to raise taxes: by eliminating tax breaks. Trouble is he won't just be punishing the rich like he intends--this will trickle down to EVERYONE.

"Since everyone in Congress can identify and vilify what they see as "tax breaks for special interests," curbing tax breaks has a lot of bipartisan support. The problem, of course, is that there's less agreement on just which tax breaks deserve the ax or at least a haircut.

And, of course, since politicians much prefer to hand out tax breaks to voters and financial backers, it may be hard for them to muster the mettle required to reverse gears."

We shall see if this actually comes to fruition. With potential gridlock forecasted for the next two years, maybe it can be stalled. In the meantime, look around for options to the tax breaks--how can you get their equivalents or do without them? If I come up with anything clever, you'll see it here.

Right off the bat, the mortgage interest deduction can be dealt with by paying down your mortgage to the point of non-deductibility--this means pre-paying your interest using this method.


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