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Tax Law Omits Child Credit in Low-Income Brackets
By DAVID FIRESTONE WASHINGTON, May 28 — A last-minute revision by House and Senate leaders in the tax bill that President Bush signed today will prevent millions of minimum-wage families from receiving the increased child credit that is in the measure, say Congressional officials and outside groups. Most taxpayers will receive a $400-a-child check in the mail this summer as a result of the law, which raises the child tax credit, to $1,000 from $600. It had been clear from the beginning that the wealthiest families would not receive the credit, which is intended to phase out at high incomes. But after studying the bill approved on Friday, liberal and child advocacy groups discovered that a different group of families would also not benefit from the $400 increase — families who make just above the minimum wage. Because of the formula for calculating the credit, most families with incomes from $10,500 to $26,625 will not benefit. The Center on Budget and Policy Priorities, a liberal group, says those families include 11.9 million children, or one of every six children under 17. "I don't know why they would cut that out of the bill," said Senator Blanche Lincoln, the Arkansas Democrat who persuaded the full Senate to send the credit to many more low income families before the provision was dropped in conference. "These are the people who need it the most and who will spend it the most. These are the people who buy the blue jeans and the detergent and who will stimulate the economy with their spending." Ms. Lincoln noted that nearly half of all taxpayers in her state had adjusted gross incomes that were less than $20,000. Families with incomes lower than $10,500 will also not receive the refund checks. But under the 2001 tax revision, they would not have been eligible for either the $600 or the $1,000 credits because they do not pay federal taxes. Proposals to give them the credits failed on the House and Senate floors on party-line votes. The Senate provision that did pass was intended to help those families making $10,500 to $26,625 who do pay federal taxes and could have taken all or part of the $600 credit. The provision, which would have cost $3.5 billion, would have allowed those families to receive some or all of the extra $400 in the new law. Most families with children who make about $30,000 or less are also eligible for the earned income credit, which the law does not not change. In addition, the law has a few other benefits for low income earners, like expanding the lowest tax bracket and a temporary reduction in the penalty on two-income couples. Several centrist senators worked hard to make the child credit fully refundable for all low income families, and the full Senate voted this month to include a provision that would have included the minimum-wage families. But the provision was dropped in the House-Senate conference, where tax writers spent days trying to cram many tax cuts — most prominently, cuts in the taxes on stock dividends and capital gains — into a bill that the Senate said could not be larger than $350 billion. House Republicans, who acknowledged the gap on the child credit, blamed the Senate for insisting on its $350 billion cap, saying the low-income families could have been covered had the Senate been more flexible. A spokeswoman for the Republicans on the House Ways and Means Committee, Christin Tinsworth, noted that the provision was included in an agreement reached last week by Representative Bill Thomas, Republican of California, the committee chairman, and Senator Charles E. Grassley, Republican of Iowa, chairman of the Senate Finance Committee. That agreement would have cost $380 billion, but it fell apart when an important swing senator, George V. Voinovich, Republican of Ohio, said he could not approve any bill that exceeded $350 billion. To satisfy him and the Senate, Ms. Tinsworth said, the child credit provision was dropped, along with other costs. "The Senate preferred to have $20 billion in state aid," she said. "But when we had to squeeze it all to $350 billion, they weren't talking about the child credits. This bill does a lot to help people who need help. But its primary purpose was to generate jobs. Apparently, whatever we do is not going to be enough for some segments of the population." But Democrats and children's advocacy groups said the Republican demand for large cuts in the dividend tax, which they said benefits primarily wealthy taxpayers, pushed away the credit from low income families. "If we were going to have a tax cut to give $1,000 to all these other kids, there's no reason not to include these kids, too," said David Harris, president of the Children's Research and Education Institute. "Their families are working and playing by the rules and are left out, though it would not have cost too much to include them." A spokeswoman for Mr. Voinovich said the senator would have been happy to extend the child credits, but believed that the entire package should not pass $350 billion. The tax writers were free to reduce the dividend tax cut, noted the spokeswoman, Marcie Ridgway. The gap in the number of families who receive the child credit occurs because of how the formula was arranged in 2001. Congress decided then to give refunds of the credit to low income families, but just to a maximum of 10 percent of the amount they made over $10,000, or a refund of $600, whichever was lower. The $10,000 amount was indexed to inflation and is now $10,500. When the credit was raised to $1,000, many families could not qualify for the extra amount, because the 10 percent maximum still limited them. Ms. Lincoln proposed raising the formula to 15 percent, which would have covered the increase in the credit for most of those families. Her proposal made it through the Senate Finance Committee, but later she voted against the full cut. Because her vote and those of other supporters were not necessary for final passage, Republicans knew they could drop the provision without hurting the bill's chances in the Senate. "I guess this shows us what our priorities are," Ms. Lincoln said. "I think this tax bill is very irresponsible in the way it treats families." |
So much for helping out the working poor.
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It's easy to pick holes an a bill this large and complex, but it's main flaw is that it should be twice as big.
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Oh, yes, I agree that massive spending cuts are necessary, but the Bushies did the best thing to stimulate the economy, IMHO, and after 2004, go after deep cuts. A big victory for the Administration.
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The last two "tax-cuts" have not been the stimulus that they were made out to be, why should this one be any different?
The mere fact that this measure only had a one vote majority in the Senate, thanks to the VP, made me suspicious of it already. Not to mention to rumors of overwhelming deficit. I dont consider overlooking 1 of 6 children under age 17 a "hole" but a travesty just like firehouses closing in NY and music, art and drama no longer being taught in many schools. Another in a long lines of Ooooops! Add it all together and the only thing to look forward to is another year of empty conservative optimism of an economic stimulus that was supposed to happen 2 or 3 years ago. Maybe its not "third strike your out" as far as Bush's "stimulus tax cuts" goes...but we will see! |
Most if not all of the people in that income bracket don't pay taxes anyway, how can there be a tax credit?
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BTW, a "credit" is not a "deduction." Deductions can only get your tax burden down to zero, and each dollar of deduction only garners you a tax savings of the % tax burden you carry, be it 10%, 20%, or 35%. A credit, on the other hand, can get you into the "gaining money" realm, and it is either a specified amount (as child care credit) or a 1:1 tax savings per dollar spent (as with the lifetime learning credit). |
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According to Arie Fleischer (sp?) tonight on ABC radio news, the people in the brackets that get no return pay $0 in income tax, according to him they don't get the extra cash because they will be paying nothing in to start with. So either he was lieing or is woefully misinformed on the subject.</font> |
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Yeah I know..."What! a politician told a lie??? my god who would have guessed?" :D Im hoping he was telling the truth, I see no need to give the class envy types even more ammo. </font> |
Although not a US citizen, I have to wonder just wtf Bush is doing to you guys, and why he appears to be so highly acclaimed.
Don't get me wrong, Canada certainly has it's issues as well, but blowing the national debt completely out of proportion while doing nothing to improve the quality of lives for it's citizens isn't number one. C'mon guys a $500 billion deficit by the end of the year? You can't tell me this is in the best interest of the American peoples. |
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Have you caught any economic news over the last three years ;) ? I'm no economist, but usually if there is smoke there is fire. I never said that tax cuts were bad, and I dunno why no democrats are campaigning for higher taxes. I'm not a democrat, nor do I have any desire to be one. [img]smile.gif[/img] I just made the observation that Bush has pushed through 2 tax cuts previously with promises of economic stimulus during his administration that have not seemed to work. If his tax cuts have worked I would love to see some facts to back that up. |
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Harley you do know that the tax code has changed a number of times since you were a little girl? What used to be ain't necessarily what is now or next tax season. </font> |
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Harley you do know that the tax code has changed a number of times since you were a little girl? What used to be ain't necessarily what is now or next tax season. </font> </font>[/QUOTE]Ok, well then to be more recent, my best friend is in this tax bracket (towards the lower end), and she's paying taxes. And the time frame I was talking about was as recent as 5 years ago. I ain't THAT old [img]tongue.gif[/img] (hehe) edit: Part of this could be from living in NY State, so maybe that's why those I know in this bracket are paying taxes (ie maybe they're state not fed). If you earn $25 for the entire year in NY State, after the standard deduction, you still owe money ($1). [ 05-30-2003, 09:31 AM: Message edited by: harleyquinn ] |
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if she is actually paying taxes then I believe she is doing something wrong. After all is said and done she should be ending up with a total federal tax of $0 or close to it...but most likely gets a refund that is basicly everything she put into the federal income taxes...you have to seperate federal income tax from pay roll taxes for things like social security and medicare and whatnot...the tax cuts only address the FI tax. Oops...missed what you said about state taxes....thats whole different kettel of fish....and I have more than one bone to pick with state governemtns and their outrageous taxations. </font> [ 05-30-2003, 09:38 AM: Message edited by: MagiK ] |
MagiK, my most recent info indicates families below $10.5K pay no taxes. As I mentioned above, however, those in the $10.5K to $26K range DO pay taxes. And, they are cut off from the child care credits.
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Just because people have children, doesn't mean they deserve to pay less taxes. If gov can considder giving credits, extra deductions, refunds, and whatnot - they are TAKING TOO MUCH! The gov at all levels drastically needs to reduce spending. Gov keeps getting bigger n bigger due to this pet project or that social program, so they *cough* need to increase the buget.
A much more equitable tax system is needed. |
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Well if that is the case then something is wrong or people in the executive branch need to get in touch with the IRS. </font> |
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I agree Night Stalker, but I think we are just discussing the most recent tax cut and not what in theory "should" be done [img]smile.gif[/img] I am completely against any form of income tax at all...the only taxes that ought to exist are fair use taxes...guess those are called VAT's...at least then, you can decide which items you wish to contribute to. </font> |
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I think after awhile you will see that some taxes are necessary. :D |
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But I do like how it has increased my business as a tax accountant. I get a lot of my clients are all calling me about what this will do for them = billable hours. I tell them that they're (despite 19% of americans thinking so) not in the top 1%, virtually the only ones this tax cut will materially help. I explain to them that just because they're making good money doesn't mean this tax cut will help. This tax cut is aimed primarily at the wealthy, not the high-earners. The real benifits go to those that have millions of dollars invested in the stock market. Now, my retirees argue with me: Then they say, but my SEP-IRA/Keogh... Which I reply "are all ready tax free while in the retirement trust" and are "ordinary income" when withdrawn. So, that doesn't help you at all. Now, when my very rich clients call, they are very happy. That's another 30K+ (or more) income they won't pay taxes on... Not that they'll actually spend it, mind you. It all goes back into the stock market via DRIPs and creates paper wealth. See, the difference between the rhetoric spewed and the reality of the law. I deal with this rhetoric all the time. But when the returns are prepared and i tell people the impact, I tell them the truth: Unless you're a multi-millionaire heavily invested in dividend paying stocks, you won't materially benifit from this. Further, it is unlikely it will stimulate the economy (sorry about that luxury service providers) as advertised because most dividends are reinvested. |
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* Families are good. Thus, there is a child deduction credit. This credit is to take account of the fact that families with children spend money supporting the kids. * There is also a child care credit. This allows you to take a credit for the money you spend on daycare. It is to encourage the working parent to get a babysitter. Money increases under this credit cut off after 2 kids, for 2 reasons. (1) It costs less per child to babysit for more kids. YOu needn't pay 4X as much to babysit 4 kids as you do 1, as a babysitter will likely do it for 2X the amount. (2) While families are good, overpopulation is bad. This is one of the few instances in the code we see Congress encouraging *smaller* families. * Accelerated depreciation on vehicles and office equipment has no basis in reality. Rather, it is to encourage businesses to buy stuff. * Charities being tax-exempt is one thing, but allowing you to deduct the money or property you donate to charity is totally based on the public policy need to encourage charities. In general, the tax code is rife with instances of public policy "encouragement," and Congress just can't get enough of it. Another point I want to make now: <h2> Sunset Provisions: </h2> The new changes sunset, or end, in 2006. There has never been a sunset provision in the tax code before. Thus, if Congress does not reauthorize these changes in 2006, the tax code reverts to how it read day before yesterday. |
Wonderful wonderful post Draconis Rex. [img]graemlins/thumbsup.gif[/img] I'm glad someone in the trenches can confirm what is widely suspected.
I have a question: I know a pensioner who argues that the dividend cut will benefit them greatly, as they get monthly dividend checks and the % rate will drop. True or False?? Thanks for any reply. [edit] Other things lauded as helping middle income earners are: 1. Marriage penalty reduction 2. 2% decrease in payroll taxes 3. The already-discussed $400/child credit increase What about these? Sorry to be so detailed, but if I can get an expert on the hook to edu-ma-cate me, I will. :D [ 05-30-2003, 01:44 PM: Message edited by: Timber Loftis ] |
Ahhh yes, the perversion of tax mentality - that it is not only to provide revenue for public services, but also to affect society. It was not always thus.
People with disposable income spend it. Those with children spend it on child rearing. Those that don't have children spend it on other things. The economy is not affected more by people with children vs people without. No, I haven't studied law, but I am well versed in logic - and these types of arguements have failings in them. Also I do not recall the political writings of the Founders mentioning that taxes were for social reform (again I must defer to your expertise). Populations need many different parts to survive: producers, consumers, providers, and reproducers (to name some). Not every member needs for fit every catagory for the population to be successful. Nor to those that fit certain categories contribute any more than others - all are needed. |
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This article was interesting. The moaning now is about people making under 20,000 per year not getting a refund check back. So lets all get honest here, these people pay little to no tax to begin with. If a family does not pay any tax, why then would they be "entitled" to a tax refund? That makes no sense at all! This isnt a welfare bill its a tax reduction bill. If one doesnt pay taxes in the first place, they do no apply to a tax reduction! |
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For TY ending 12/31/2002 if you have $5 of taxable income, your tax is $1. You can easily look this up yourself. So obviously, we're not talking taxable income individuals being left out in this bill. Rather, we're looking at "total income." Working backwards, we add standard deduction (7850) plus three exemptions (9000). So, married couples with one child don't pay income taxes until they earn at least $19,855. Add 3000 to this for every child/dependent above 1. So, there is some truth to the above. But it is a very incomplete truth: Single parents (mostly mothers) making $24,000 a year are hit hard by this (typcial) lack of republican empathy in their big tax giveaway. A single mother of that income will have a taxable income of about $11,000. She will pay almost $1200 in taxes. She would normally get the $600 (now $1000) tax credit. Meaning $500 out of pocket, which means she's out the $400 she could have received. And I'm sure she could have used that $400 that she won't get. Something obviously over-looked in the non-understanding presented in the referenced post is the difference in tax credits. Tax credits are of two types: refundable and non-refundable. One of the republican struck-down provisions was making this credit refundable. Thus all low-income taxpayers would have benefited from this provision. Which brings us to stimulus. My years and years of experience as a CPA with high net worth clients is that these types of tax cuts are re-invested or, with non-earned income set, allows the client to aviod taxes by not converting capital to income. That is, since they don't have to pay taxes on income, there is no point in selling stock (mutual funds, etc.) to pay taxes. Thus, capital is accumulated instead of being redistributed through taxation. |
Elric, you misunderstand. If your tax burden decreases but spending doesn't, you may keep the $$ in your pocket this year but Uncle Sam has taken out a loan in your name and you will pay more $$ in a future year. Thus, you really were not allowed to keep the money at all. Don't buy the illusion proferred by the gov-mint.
Someone who makes $20 K does pay taxes, probably about $3K worth. Now that $3K means much more to them than $5K does to someone making $50K. Moreover, the real unfairness is evident when you look at the following scenario: Family A: Makes $27K/yr, has 2 kids, gets $2K back in taxes. Family B: Makes $26K/yr, has 2 kids, gets $1200 back in taxes. You have given the family that makes $1K more $800 more dollars. Since that family only paid $150 more in taxes, you've given them an unfair windfall. I'm not all for taxes, but I am all for a fair tax system if you are going to have taxes in the first instance. Moreover, I can't morally live with myself if I allow you guys to berate those who likely work just as hard as we do and just sadly happen to be less fortunate monetarily. While they may not pay as much tax as me, I'm not going to adopts some superiority complex. Especially since on a % per dollar basis, they will miss the money much more. |
Now, this is a marginal tax rate table for 2002. What "marginal tax rate" means is the tax on the "last dollar earned" instead of the average tax rate which is the total tax/total income.
Marginal Income Tax Rates for a Married Couple, 2002 Taxable Income* Marginal Income Tax Rate $0 to $12,000 10 percent $12,001 to $46,700 15 percent $46,701 to $112,850 27 percent $112,851 to $171,950 30 percent $171,951 to $307,050 35 percent over $307,050 38.6 percent *Income after subtracting allowable deductions and exemptions. Which brings us to Bush's last tax cut: In a televised appearance with Republican Congressional leaders and three Democratic senators last month, the President declared that this rate reduction "affects those making $27,000 to $65,000 a year."(1) The President's statement conveys the impression that many or all families in this income range would benefit, while families above this income range would not. For families with children, however, almost the opposite is true. The President's statement was misleading for several reasons. (A) The $27,000 figure is the level of taxable income at which the 27 percent begins for a single individual. The level of taxable income at which the 27 percent bracket begins is higher than this for other tax filers — married couples filing jointly and single parents. (B) Furthermore, a filer's taxable income is considerably lower than his or her full income. Taxable income is a tax term that refers to a tax filer's income after either the standard deduction or itemized deductions, as well as all of the personal exemptions for which the tax filer qualifies, are subtracted. To have a level of taxable income of $27,000 in 2002, a single person would need actual income of at least $34,700. For tax filers who are not single individuals, the difference between their taxable income and their full income is considerably greater, because they qualify for larger standard deductions and more personal exemptions. (C)For example, a married couple with two children does not face the 27 percent tax rate (that is, does not have taxable income of at least $46,700) until its full income exceeds $66,550. (An income of $66,550 minus the standard deduction of $7,850 for a married couple and $12,000 for four personal exemptions equals $46,700.) If such a family itemizes its deductions rather than taking the standard deduction, the level of income at which it first becomes subject to the 27 percent rate generally is higher than $66,550. |
The President's statement also implied that those with incomes above $65,000 would not benefit from the rate reduction. A literal reading of Mr. Bush's statement would lead one to believe this is a tax cut from which the wealthy would not secure a gain. Yet taxpayers in higher brackets would benefit. In fact, the group of taxpayers that would benefit the most are those in tax brackets higher than the 27 percent bracket — a group that consists of the five percent of Americans with the highest incomes. (Why these individuals would benefit most is explained in the box on below.)
As a result, a married couple with two children would not benefit significantly unless it had a substantial income. A married couple with two children that had income of less than $66,550 would receive no benefit from acceleration of the 25 percent rate. If such a family had income of $70,000, it would receive a tax cut of just $70 in 2002 — and $210 over the next four years. But if the family had income more than $135,000, it would receive a tax cut of $1,300 in 2002 and nearly $4,000 over four years. |
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Reinvestment of dividends is the natural thing to do for someone desiring to diversify and investment portfolio. Any stock trader worth their salt will want you to have a very diverse portfolio even if the short term return would not be greater than say investing all of your money into techs etc. Thats because any stock trader worth their salt wants to keep you as a client for more than several months, they want you buying other securities with your profit twenty years down the road as well. Reinvestment also helps other corporations who may not potentially have gotten your investment elsewise. For instance, lets say we bought some P&G, which returned a tidy little dividend. To diversify it may be a good idea for me, to take some of my profits and invest it in Lucent technologies or perhaps an Intel? (Obviously you are going to want dividends on an investment so arent likely going to buy Joe's Computer Company, unless of course it is a phenomenal opportunity). At this juncture alone, you have now provided capital to two corporations that will have the ability to increase business or take advantage of business opportunities, that they may not have been able to prior to this. What follows is the need for employees to help manage such. You also mentioned, "well unemployment is at 6%, so the last one didnt do diddly-squat" Being in the line of work you are, you have to understand how long it takes an economic motor to get churning. Its like a weighted freight train to get the momentum and inertia going. These things do not magically happen overnight, they are ALL driven by a corporation persuing additional profits et al. That only occurs when its stock is trading at a decent level. Lets face it, consumers may be price driven to beat hell, but they also have a tendency to "kick a product or service when its down." Look at AOL and how many people piled on to the class action suit, yet really didnt have much of a true bitch. |
So, anyway. Basically all of Bush's tax cuts have been for the wealthy (top 3 brackets). Simply because only 4.4% of americans are in the tax brackets of Bush's first tax cuts. While 76.8% of americans are in the lowest tax bracket, which includes the more than 50% of the "middle class".
Source: Congressional Budget Office And yet, we have 6% unemployement. I've got friends who can't get a job. I've had five clients go out of business, including three chapter 7's, and a sixth is barely hanging in there. And somehow, this giveaway to the rich is going to somehow miraculously improve things, despite it failing twice already. |
Congressional Budget Office data demonstrate that more than three-quarters of all tax filers would receive no benefit from this proposal.(2) The CBO data show that in 2000, some 76.7 percent of all tax filers either had income too low to owe federal income tax or were in the 15 percent tax bracket.(3) These tax filers would be unaffected by changes in the 27 percent tax bracket.
In its recent report "Economic Stimulus: Evaluating Proposed Changes in Tax Policy," the Congressional Budget Office finds that the proposal to implement the 25 percent rate beginning in 2002 would not be effective stimulus. It states that "compared with other personal tax cuts, the first-year stimulus that this proposal would generate relative to its total revenue loss is probably small." CBO reaches this conclusion for two principal reasons. First, these rate cuts would only benefit the top one-quarter of taxpayers, leaving out lower-income households that would be more likely to spend additional income and thus boost the economy.(4) Second, the costs of this provision extend through 2006, with the result that three-quarters of the total cost occurs in 2003 through 2006, years after the economic downturn is expected to be over. |
Hey, Draconis, I certainly appreaciate the lengthy tax lesson, but you still didn't address my question (which you may not have seen) regarding lauded benefits to the middle class and whether or not they are "real."
1. Dividend tax cut 2. 2% payroll tax cut 3. reduced marriage penalty 4. The well-discusses child credit (btw, is this the "Child Care Credit" that you only get if you hire a babysitter??) What about these?? |
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Pritchke, I am going to answer you and Donut at the same time.... I didn't say NO TAXES, I said NO INCOME TAXES [img]smile.gif[/img] A persons income should be inviolate and belonging unto them alone. If there are costs inherent with running a government and maintaining a military (and there are) you institute a tax levied on consumer products, roads, and infrastructure. if a person wants to use these things (roads and such..pay the toll, if a person wants a Television, there will be a tax on it. The only Items I would elimiante any taxes from would be food stuffs and water. Goods and services other than food and water would be taxed....hmmm medical care and medicines would also have to be exempt too...but that is just off the top of my head..I haven't actually worked out an entire National Economic Plan while on my coffee break [img]smile.gif[/img] </font> [ 05-30-2003, 02:25 PM: Message edited by: MagiK ] |
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There are quite a few sunset provisions in the tax code. Some of them have been in effect for over 20 years now, like the 0.8% FUTA tax enacted in the 1970's. It was a "temporary" "emergency" tax. It was supposed to run a few years to help replenish bankrupt state unemployment coffers, like in Michigan. There are others. Don't get me wrong because I don't post them. There are many, many more. I just don't see the need to go through the code and regs. |
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