Taxed with uncertainty

Government inaction may be preferable to overzealous legislation, as several business leaders said in a Daily Sentinel article Sunday. But inaction on tax policy is creating uncertainty for businesses, individuals and investors. A month from the start of a new year, no one knows what their 2011 tax rate will be.

If Congress does nothing in the current lame-duck session, the Bush-era tax cuts will expire Jan. 1, and income-tax rates will rise for nearly everyone, a prospect that could spell further problems for an economy slowly crawling out of recession.

But Republicans, Democrats and President Barack Obama disagree on which cuts to extend. Obama wants them only for families making up to $250,000 a year. The GOP wants rates extended for everyone, including the wealthy. A Democratic plan being discussed would extend them for those making up to $1 million a year.

The most likely compromise plans center on a temporary extension of all the tax cuts for two or three years.

There are economic arguments for both sides, as a report from Moody’s Analytics showed. If all of the tax cuts were allowed to expire, the federal deficit would be cut almost in half, Moody’s said. But the economy would slow and unemployment would rise.

It may be a mistake to raise taxes on any taxpayers, given the current state of the economy. But it’s most critical to end the uncertainty. It’s critical now for members of both parties to demonstrate they can work together to halt the tax uncertainty.


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