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Senate Punts on Tax Cut Legislation

The news today started off with an announcement that the Senate would not take up the issue of whether to extend the expiring income tax cuts.

President Obama has made it one of his key economic policies that the cuts would be extended for those making less than $250,000, but in the height of the political campaign season, the Senate could not get together and make a decision.

As we get closer to 12/31, if the government does not make a decision, you may be faced with significantly higher taxes, no matter what your level of income.

So that you can do some planning, you may want to use the following website ( http://www.mytaxburden.org/ )from the Tax Foundation that compares your tax situation under the following four possible scenarios:

(1) EXPIRATION: Congress allows the 2001 and 2003 Bush tax cuts to expire as scheduled;

(2) REPUBLICAN PLAN: Congress passes the Tax Hike Prevention Act of 2010 (S.3773), which fully extends all of the Bush tax cuts, and is supported by most Congressional Republicans;

(3) OBAMA PLAN: Congress passes the tax laws suggested in President Obama’s budget, letting cuts expire for families making over $250,000 a year (and singles making over $200,000), as well as extending some stimulus measures and imposing new limitations on itemized deductions; and

(4) DEMOCRATIC PLAN: Congress passes a tax bill that reflects limits set by the Statutory Pay-As-You-Go Act of 2010, passed earlier in the year by Congressional Democrats.

You can take your 1040 from from last year and plug in some basic summary information. It will then calculate your taxes based upon the four scenarios above.

I have no idea if this is a partisan website or not – the Tax Foundation has been around since 1937, so I assume it is above the fray, but if its not, please do not yell at me. The intent of this post is to give you a tool so that you can plan for the future. I used it and it showed that my taxes will go up by $4,000 if the government does nothing – so I just wanted to give you the same opportunity to think about the future.

From a personal standpoint, I can easily see the recession lasting much longer than expected if $4,000 comes out of my spendable income. I certainly won’t be consuming to the level that the economists anticipate necessary to generate new jobs for the unemployed.

As always, politics gets in the way of sound policy…

Mark