Nov 7, 2008

A Shearer in Sheep’s Clothing?

Today’s taxosphere focused on some pretty surprising political developments. After a landslide Presidential victory and a strong showing in Congressional elections, Democrats are considering — cuts on income taxes and corporate taxes. Or are they?

Via TaxProf, I found this incredible story of a UK government tax service that was shut down when twelve million users had their data compromised due to a single lost memory card this aptly demonstrates that it’s always important to know you can trust the tax services you work with (if you’re given a choice, of course).
Russ Fox is disappointed in the election, which he views as bad for the country but good for the tax-preparing business.

We will have a Congress where both the House and Senate are controlled by the Democrats (though it appears that Republicans will have enough votes to filibuster in the Senate). In the past, when this has occurred taxes have gone up.

I’ve always viewed a divided government as a very dangerous thing, because the easiest way to negotiate is logrolling: we might find ourselves spending more on Republican pet projects, in order to convince those Republicans to play along with huge new Democratic programs.
According to Kay Bell at Don’t Mess With Taxes, the next stimulus plan may involve a large tax cut. Could be a pleasant surprise, especially given that…
As TaxProf once again reports, Democrats may support a corporate tax cut, as well. Of course, the bill is not just a direct tax cut:

It would have raised most of the $364 billion, 10-year cost of the rate cut by repealing a deduction for domestic manufacturing activities, limiting tax breaks for multinationals’ overseas income and disallowing the last-in, first-out method of accounting.

In other words, they will be paying lower taxes on higher reported income, so this is entirely cosmetic.

The last one is actually very surprising. I have to wonder: how is it that after two hundred years of coming up with new tax plans, Congress hasn’t exhausted all of the tricks for faking a tax cut. Surely, if they can make corporations report more income and pay less taxes on now, they could have done so years ago and boosted the US’s rankings on economic freedom indices.

It is apparent that they’re cleverer than anyone could have realized. Let’s just hope they stick with finding ways to call something a tax cut even though everyone pays just as much in taxes, rather than finding a new way for people to pay more. I am not optimistic.