The new year brings more than cold weather every year. It’s tax season again. For those who are expecting to receive a tax refund, it is time to start gathering the information, documents, and receipts necessary to file their 2014 tax return. For those who are expecting to make a tax payment, all of this can be put off until the April 15th deadline.
The bad news for 2014 taxes (thanks to Obamacare) is that if you or your dependents did not have health insurance in 2014, you have to pay a penalty, the “individual shared responsibility payment,” when you file your 2014 tax return. The penalty is the higher of 1 percent of your yearly household income (up to a maximum of $2,448) or $95 per person ($47.50 per child) for the year (up to a maximum of $285). If you’re uninsured for part of the year, 1/12 of the penalty applies to each month you’re uninsured. If you’re uninsured for less than 3 months, you don’t have to pay anything. For those getting a tax refund, paying the penalty means that they will receive less of a refund.
The good news for 2014 taxes (if there can be any good news about taxes) is that taxes did not go up in addition to the Obamacare tax increase that affects those who were uninsured. Taxes almost went up, though. As late as War, Empire, and the M... Best Price: $5.45 Buy New $9.79 (as of 01:30 EST - Details) mid December, they were scheduled to increase. It is only because the lame duck Congress passed the Tax Increase Prevention Act of 2014 (H.R.5771) that taxes did not increase.
The Tax Increase Prevention Act extends through 2014 certain expiring tax provisions relating to individuals, businesses, and the energy sector. Although passed in December, it is retroactive to January 1, 2014. The tax provisions included are certain deductions and credits that have to be passed by Congress every year because they are not a permanent part of the tax code. They are termed “tax extenders” because they must annually be extended in order to remain enacted.
They include for individuals:
- the tax deduction of expenses of elementary and secondary school teachers;
- the tax exclusion of imputed income from the discharge of indebtedness for a principal residence;
- the equalization of the tax exclusion for employer-provided commuter transit and parking benefits;
- the tax deduction of mortgage insurance premiums;
- the tax deduction of state and local general sales taxes in lieu of state and local income taxes;
- the tax deduction of contributions of real property interests for conservation purposes;
- the tax deduction of qualified tuition and related expenses; and
- the tax exemption of distributions from individual retirement accounts for charitable purposes. War, Christianity, and... Best Price: $8.95 Buy New $9.95 (as of 01:30 EST - Details)
They include for businesses the extension of the Indian employment, low-income housing, new markets, and work opportunity tax credits as well as tax credits for research activities, American Samoa economic development expenditures, railroad track maintenance expenditures, mine rescue team training expenses, and differential wage payments to employees who are active duty members of the military. Provisions for businesses also include favorable changes to depreciation and expensing rules and the complete exclusion from gross income of gain from the sale of small business stock.
They include for the energy sector:
- the tax credit for residential energy efficiency improvements;
- the tax credit for second generation biofuel production;
- the income and excise tax credits for biodiesel and renewable diesel fuel mixtures;
- the tax credit for producing electricity using Indian coal facilities placed in service before 2009;
- the tax credit for producing electricity using wind, biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic renewable energy facilities;
- the tax credit for energy efficient new homes;
- the special depreciation allowance for second generation biofuel plant property;
- the tax deduction for energy efficient commercial buildings;
- tax deferral rules for sales or dispositions of qualified electric utilities; and
- the excise tax credit for alternative fuels and fuels involving liquefied hydrogen. The Other Side of Calv... Best Price: $17.82 Buy New $29.95 (as of 01:10 EST - Details)
Tax exemptions and tax deductions serve to reduce the income subject to tax. Tax credits serve to reduce the amount of tax owed on income. Either way, individuals and businesses will pay less in taxes the greater the number, and the greater the amount, of exemptions, deductions, and credits that they qualify for. Exemptions, deductions, and credits that are repealed, reduced, or allowed to expire have the same effect as tax rates increasing—you pay more taxes to the government.
The Tax Increase Prevention Act was introduced in the House on December 1. It passed the House on December 3 by a vote of 378-46. It passed the Senate on December 16 by a vote of 76-16. It was signed into law (PL 113-295) by the president on December 19. Twenty-six Republicans in the House and eight Republicans in the Senate voted against the bill.
|Justin Amash (MI)||Raul Labrador (ID)|
|Paul Broun (GA)||Doug Lamborn (CO)|
|Curt Clawson (FL)||James Lankford (OK)|
|Tom Cotton (AR)||Cynthia Lummis (WY)|
|Sean Duffy (WI)||Tom McClintock (CA)|
|Jeff Duncan (SC)||Mark Meadows (NC)|
|John Fleming (LA)||Mick Mulvaney (SC)|
|Scott Garrett (NJ)||Mike Pompeo (KS)|
|Trey Gowdy (SC)||Reid Ribble (WI)|
|Andrew Harris (MD)||Mark Sanford (SC)|
|Tim Huelskamp (KS)||Bill Shuster (PA)|
|Walter Jones (NC)||Steve Stockman (TX)|
|Jim Jordan (OH)||Ed Whitfield (KY)|
Senators: The War on Drugs Is a ... Best Price: $5.87 Buy New $5.95 (as of 01:30 EST - Details)
|Rob Portman (OH)||Dan Coats (IN)|
|Jim Risch (ID)||Tom Coburn (OK)|
|Tim Scott (SC)||Mike Crapo (ID)|
|Pat Toomey (PA)||Jeff Flake (AZ)|
But what about Democrats? Yes, it’s true that twenty Democrats in the House and eight in the Senate voted against the tax extender bill as well. I single out Republicans because most Democrats never met a tax increase they didn’t like. And Democrats aren’t the ones who talk about the need for lower taxes and less government. There are other reasons I pick on Republicans, but I don’t need to get into them here.(Broun, Stockman, and Coburn are not in the new 114th Congress. Lankford is now in the Senate.)
Why do some Republicans want to raise your taxes? Keep in mind that the elimination of a tax exemption, deduction, or credit has the same effect as tax rates increasing.
So, why do some Republicans want to raise your taxes? Keep in mind that the Republicans listed above are generally not considered “liberal,” “centrist,” or “moderate” Republicans. Some have even been described as “libertarian leaning.” So then, why would a “conservative” Republican want to raise your taxes?
There is an incredible aversion to tax deductions and credits among some conservatives (and even some libertarians) because they “distort” the tax code and are not part of “good” tax policy.
Typical is the Tax Foundation, “the nation’s leading independent tax policy research organization.” Here is the Tax Foundation at the beginning of 2014 on the then recently expired tax extenders: King James, His Bible,... Best Price: $2.07 Buy New $56.00 (as of 01:05 EST - Details)
Many of the 55 expired provisions are economically distortive, encouraging some economic activities over others. In fact, there are only a small few that should be kept in order to make the tax code more neutral by mitigating the tax code’s biases against savings and investment.
Here is the Tax Foundation on December 4 after the House passed the Tax Increase Prevention Act:
Only a handful of tax extenders should be permanent components of the tax code. The provisions that should be extended on a permanent basis are the extenders that help make the tax code more neutral. These provisions primarily deal with business investment.
Here is the Tax Foundation on December 16 after the Senate passed the Tax Increase Prevention Act:
We have written previously that not all tax extenders are good tax policy, and thus most should not be extended. There are a handful of provisions, though, that provide a more neutral tax code and should become permanent tax provisions.
And if this were not unfortunate enough, it is even stated that “the bill will cost $42 billion over ten years.”
I think the “distortive” nature of the tax code is greatly exaggerated. Most people do something because they want or need to do it, not because they get some tax benefit for doing so. No one buys a house just so he can deduct the mortgage interest paid. No one has a child just so she can claim an additional tax exemption. Teachers don’t spend money on supplies and supplementary material that they will not be reimbursed for just so they can take a tax deduction for it.
And tax exemptions, deductions, and credits certainly don’t cost the government money unless one believes that the government is entitled to a portion of the income of working Americans.
From a libertarian perspective, keeping more money in Americans’ pockets, purses, and bank accounts is a much more sound tax policy than making the tax code more neutral.
Even worse than some Republicans wanting to raise your taxes by ending certain exemptions, deductions, and credits is the fact that some Republicans also want to raise your gas tax.
The federal excise tax on gasoline is 18.4 cents. It is 24.4 cents on diesel fuel. If Senator Bob Corker (R-TN) has his way, each will increase by 12 cents over the next two years—and then be indexed to inflation. The Hill reports that other Republican senators would go along with Corker. “I just think that option is there, it’s clearly one of the options,” said Senator James Inhofe of Oklahoma. He argues that lawmakers “don’t have a choice” but to Archaic Words and the ... Best Price: $13.43 Buy New $24.75 (as of 01:30 EST - Details) consider raising the gas tax. However, he prefers to call it a “user fee” so he can try to avoid being called a tax raiser. Senator John Thune of South Dakota cautiously said that “we have to look at all options.” Senator Orin Hatch of Utah “said that some Republicans could be enticed to back a gas tax increase if it was paired with tax cuts elsewhere.” “People who use the highways ought to pay for them,” added Hatch. Senator Rob Portman of Ohio doesn’t “see a gas tax increase happening,” but says “a reform to calculating the gas tax could be an option.”
This is not the first time that Republicans wanted to raise taxes. Back in 2011, they opposed extending the temporary cut in the employee’s share of Social Security taxes from 6.2 to 4.2 percent that was enacted in 2010.
As I argued back in 2004, we certainly don’t need an increase in gas taxes. If the federal government “needs” more money for the Highway Trust Fund, then why don’t Republicans quit funding the NEA, NEH, and the CPB (just to name a few agencies) and simply redirect the money to road and bridge maintenance?
And until such time as tax rates decrease, which may never happen—even with a Republican-controlled Congress—Americans need more tax exemptions, deductions, and credits, not less of them. Instead of just allowing teachers to receive an above-the-line tax deduction for purchasing supplies, it would be a great idea to extend the same deduction to carpenters, mechanics, and plumbers purchasing tools no matter how much it increases, makes more complex, and “distorts” the tax code.
Why do some Republicans want to raise your taxes? Because, in spite of their rhetoric about lower taxes and less government, they have no philosophical objection to taxation, they believe that the government has a right to a percentage of everyone’s income, and they believe that it is not wrong for the government to forcibly acquire someone’s property.