I know that this information (at least some of it) has been out there in other media sources. Not all of this is news, but I felt the need to get it out there with an experts viewpoint. We all know that we are facing a fiscal cliff and the 1,000 pound gorilla in the room is where is the money going to come from to pay for ObamaCare. Well, thanks to a bit of digging and with some help from my lovely assistant (who has nearly two decades of experience in the tax prep field specializing in small businesses) I will show where exactly where at least some of the revenue will come from to pay for ObamaCare. From what I have seen so far, most of you will be less than impressed.
I have received some notes from a seminar that was given by the vendor of a major tax prep software company. This seminar was a prepper course for CPA’s about what they will see not only this tax season, but in tax seasons to come. The following bullet points (with a layman’s explanation provided by my lovely assistant) are things that most people, if they knew ahead of time, may just have changed their minds on November 6th. Are you ready kids? Well, ready or not, here we go…
There are 93 expiring or already expired tax items
Now, some of them do not affect the majority of people. Several have to do with estate taxes. However, there are quite a few that do affect the average person. Whether these are taken care of by the President and Congress before January 1st is yet to be seen. If not, the tax season could be delayed while the proper forms are created and made available to tax preparers. If there is a significant delay, will there also be a corresponding extension to the filing deadline? I doubt it…
No itemized deduction for Sales Tax
This one affects more people than you would first think. Up until this year, if you bought a car (for example), you could write off the sales tax. So, instead of getting a credit of up to a few thousand dollars you get to pay for money you spent in taxes. I’m betting this one doesn’t get fixed. On the left, if you say ‘itemized deductions’ they assume you are talking about tax loopholes for the rich. Yep, that family who is making $50,000 who needs to buy a car to get to work and the kids to school is rich.
10% credit for low speed electric vehicles and plug in electric conversion
People wondered why the Nissan Leaf is going to fall way short of sales goals for the year. This hits the liberals twice. It reduces the amount of sales taxes collected (the average price of a hybrid/electric car is 2-10 thousand more than a gasoline car) and it proves that without massive tax credits, people don’t want to buy their green cars.
Energy efficient home credit
Again, here’s another way to soak middle-class families who are trying to do the right thing. It was reduced in 2011 and has disappeared totally. It wasn’t much of a credit (30%/$1,500) but it was a little something to help the average family offset the costs of making energy efficient choices for their homes.
Energy efficient appliance manufacturer credit
This one is a little involved, so try to stay with me here. There was a credit given to producers of energy efficient appliances. The credit per unit (maxed out at 4% of gross sales) was given foe every unit produced over the average production in that industry over the previous two years. So, if the average production of energy efficient refrigerators was, for example, 3,000 units and a company ramped up production to 3,500 units, they would get a tax credit for the extra 500 units. I’m guessing the credit was put in place, partially, to help offset the overtime given to the workers to make the extra units. Now, with the credit gone, it creates a disincentive for these manufacturers to give out the overtime. So, a credit given to “evil” corporations and greedy millionaires turns out to hit the blue collar manufacturers the hardest. I have known many workers over the years that count on that overtime for various reasons. Now, with it gone, the discretionary spending does way down, affecting the small businesses that rely on that spending.
Mortgage insurance deductable as mortgage interest
In past years, if you paid for mortgage insurance you could deduct the premiums paid along with the mortgage interest. Considering that the premiums could easily climb over $1,000 per year, that is a real tax savings for the average family. This one was started in 2007…sounds like another ‘evil’ Bush tax cut on those greedy rich. Nevermind the fact that the people that buy mortgage insurance are, for the most part, not rich. It’s against the liberal talking points.
Coverdell savings accounts limits lowering
For any of you who have been using the Coverdell savings accounts to pay for a dependents future education costs, you better pay close attention to this. Up through year, you are able to contribute $2,000 into the accounts. If things are not changed, this amount will lower to $500. With the rate of inflation on it’s way up, this limit won’t even cover the rise in inflation. Once again, the people that are trying to be responsible and do the right thing take it in the shorts.
Student loan deduction adjusted
After this year, student loan interest will not be able to be deducted for interest payed after the first 60 months of the loan. Now, I have never had a student loan, so I don’t know how long it takes to pay off the average loan, but with the average debt that today’s college graduates face, I can imagine that a decent percentage of graduates take more than 5 years to pay off all of their student debt. Here’s another deduction that helps the middle-class folks that (likely) will not be adjusted mostly because of the low profile of it.
Child tax credits
There are a couple here that I know hit every middle class family. First, the Child Tax Credit. After this year, the amount will be cut in half (to $500 from $1,000) if there’s no adjustment. This tax rarely went to high income earners. This was put in for the low to middle class workers. In addition, the Child and Dependent Care credit will also be reduced. After this year, it will be 30% (instead of 35%) on the first $2,400 (instead of $3,000) spent on child care. As someone who has taken advantage of both these credits in the past, these are both very important credits for people that are counting on a refund.
OASDI rate increases
After this year, the 2% cut to the Social Security tax put in place in during the Obama stimulus package will expire. Funny, a flat tax like this was supposed to affect the rich more than the poor. So why would Obama give a tax credit to rich people? Oh yea…it was supposed to help spur economic development. Now, he wants to soak the rich, hoping that what the cut failed to do an increase will accomplish. Makes sense to me.
AMT threshhold lowered
Ahh, the AMT. No one single aspect of the tax code causes more frustration to those that have to pay it than the Alternative Minimum Tax. Currently the exemption sits at $48,450 (for unmarried) with a patch in place (a patch is an adjustment put in by Congress to adjust for inflation). The president proposes lowering this to $33,750 without a patch. Now, I have no way of knowing how much the rate will be after a patch (if they add one on). I don’t claim to know very much about the AMT, but anyone who does, these numbers mean a lot. To me, it looks like a lot more people will be subject to the AMT.
Medical expense limit to increase in 2013
For anyone that has chronic, ongoing medical expenses, you know that there is a bit of relief. If your medical expenses exceed a certain percentage of your income, you can deduct it from your income tax. Unfortunately, in 2013, that percentage will jump from 7.5% to 10%. How many elderly and disabled people will be affected by this? How many on a fixed SSI income will suddenly find themselves upside down?
Now, these are just some of the changes to the tax code that are either up for expiration or that have already been put in by the current administration. For all the talk of giving breaks to the middle class, I don’t see a lot of it. I can’t say for sure if all of these will continue to either go away or be applied, but my guess is if you don’t hear about an increase or renewing a decrease, there won’t be a change. Jobs are down, wages are down, and taxes are going up (I only grazed the surface of ObamaCare). It is often said that we live in a Nanny State. I agree with the local radio host who disagreed…We are in a Mommy State. We want the government to take care of us from cradle to grave. Just like Julia…Only much, much worse….