As many Americans finish their returns to send to the IRS, some financial advisers say that, with deep budget deficits and the Bush tax cuts set to expire at the end of next year, they are counseling clients to prepare for a rise in their tax bill in the coming years.
“We’re going broke,” said Clint Stretch, managing principal for tax policy at Deloitte Tax. “Whenever we’ve had big deficit-reduction measures in the past, it’s always had some spending cuts and some tax increases.”
And, they add, while the current fiscal situation is particularly stark, it’s also just the latest example of the uncertain tax situation they and their clients have dealth with historically.
“From an adviser perspective, that’s why businesses often have to get professional assistance,” said Edward Karl, vice president for taxation at the American Institute of Certified Public Accountants. “Because there’s so much complexity out there.”
Republicans have, once again, been hitting Democrats for proposing tax increases.
The debate over taxes flared up again in the aftermath of the president’s Wednesday deficit-reduction speech, in which he called both for overhauling the individual tax code and letting the Bush-era tax rates expire for the richest taxpayers at the end of 2012.
Obama has long said he favors extending the Bush-era rates only for yearly income below $250,000 for couples and $200,000 for individuals.
“We cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society. We can't afford it,” said Obama, who in December signed the tax-cut compromise that extended all of the Bush-era rates for two years. “And I refuse to renew them again.”
Rep. Nancy Pelosi (D-Calif.), the House minority leader, also recently suggested raising taxes on those making in excess of $1 million a year — joining a call made by, among others, Sens. Charles Schumer (D-N.Y.) and Bernie Sanders (I-Vt.), as well as Rep. Jan Schakowsky (D-Ill.).
Predictably, those proposals have fallen flat with Republicans, who called tax hikes the only concrete proposal in the president’s Wednesday speech.
“This is the tired old way of waging class warfare, pitting one piece of society against the other,” said Rep. Eric Cantor (R-Va.), the House majority leader.
GOP lawmakers have also unfavorably contrasted Obama’s fiscal vision with that of the budget largely crafted by Rep. Paul Ryan (R-Wis.), which assumes all current tax rates will be extended.
Still, even with both sides presumably dug in, some advisers say they don’t see another across-the-board extension of the Bush tax cuts in the cards.
“I don’t know that the political winds that caused them to hit the snooze button last year will be around again,” said David John Marotta, a self-described libertarian adviser based out of Charlottesville, Va. “If so, it will be a pleasant surprise.”
Even as he expects some taxes to go up, Stretch said that U.S. tax policy doesn’t always go in the directions one expects, noting that it would have been difficult to predict the tax cuts from early in President Reagan’s first term or the 1986 tax reform several years afterward.
Plus, with tax reform back on the minds of officials from both parties, he adds it’s hard to say who would be the winners and losers from a plan that eliminated some credits and deductions while lowering rates.
“You’ve just got to move forward with your best set of assumptions,” Stretch said.