As Congress fiddles, taxpayers get burned

Posturing over the war in Iraq, running for re-election and, yes, commissioning a special study of  the life of Cesar Chavez (H.R.359) have distracted our representatives this year from fixing the tax code.

We're still facing uncertainty about the estate tax and the alternative minimum tax. As well, numerous important tax provisions are scheduled to expire at the end of 2007 (see sidebar).

Meanwhile, House members are busy proposing legislation such as H.R. 954, to designate a postal facility in New York City as the Percy Sutton Post Office Building.

Uncertainty makes it very difficult for taxpayers to plan. The portion of the tax code relating to the estate tax, for example, provides for a gradual phaseout of the tax in 2010, then a return to a $1 million exemption in 2011.

The alternative minimum tax is expected to snare 25 million taxpayers this year, up from 6 million in 2006. This was never the intention of the tax; it was put into place to stop wealthy people from avoiding taxes. Unless Congress acts before year-end to raise the exemption from the tax, a lot of middle-income taxpayers will be hit with substantially larger tax bills for 2007.

Of course, we understand that taxes are not everything - Cesar Chavez and Percy Sutton have their places in history. But we sincerely hope that Congress will see fit by the end of the year to tackle the important issues that have put question marks in taxpayers' financial planning.

Too, we understand Congress' desire to use the tax code as a tool to engage in social engineering – the mortgage-inter-est deduction to foster home ownership, for example, or the child tax credit to ease the burden on parents. But once the decision is made to use the tool, it should be wielded responsibly. That means eliminating uncertainty for taxpayers and financial planners, not increasing it.