Tax Cut Act Needs Sorting Out

2007-04-12 11:34:06

( Business )



In 2001, Congress enacted a tax relief law that promised to give major tax cuts, especially on estate taxes. The law promised to give substantial income tax cuts, repeal estate taxes, and encourage more education and retirement savings. Many people believed that if all the phased tax cut provisions were to actually happen, this tax law would constitute one of the largest tax relief packages over the past decades.

You might not be so convinced. One problem you saw was that, in order to fulfill its promised objectives, Congress provided that many of the tax cuts would become effective only in the later years of its ten-year effective period of the law. In other words, there would be no tax cuts to enjoy in the early years. This made the tax cut provisions vulnerable to possible repeal or freezing in a future Congress (as, for example, a response to budget shortfalls) without the intended tax relief ever becoming effective.

In several areas of the law, tax experts commented that Congress made the provisions too complex and ultimately very difficult for the average taxpayers to take advantage of the tax cuts. For instance, some promised tax benefits would take effect only gradually. Thus the advertised relief that you anticipated would occur over a long period, as much as ten years on some provisions like the estate tax repeal. Overall, the tax cuts in the 2001 tax act are very complicated. The provisions increase the burden of planning.

However, not all the changes are complicated. Some quick cuts on taxes became effective immediately, like the increased credit for child care and the higher limits on maximum contributions for IRA and retirement plans. A future Congress may have to sort out this complex tax legislation, hopefully to simplify it and make its promised tax cuts a reality for all taxpayers.


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