With the legislative and executive branches of the federal government about to be under the control of one party, the time is growing ripe for a major tax bill.
Already there is much being written about a push for a lower top federal income tax rate. A lower top rate would diminish the tax savings produced by the charitable deduction, but it would also leave certain individuals with more money to give to charity (e.g., in the form of cash annual gifts).
There is also talk of repealing the alternative minimum tax (AMT). The AMT doesn’t target charitable giving, though it did for a time in the 1980s. But it raises a lot of revenue. The irony is that it raises this revenue largely from middle-income earners, not from the upper-income earners it was aimed at when introduced in 1969.
Whether lower tax rates will spur the economy is anyone’s guess. Lower rates conceivably will spur a lot of saving, which, according to economists, includes individual debt reduction.
It will be interesting to see how the states react to lower federal income tax rates. The states are hungry for revenue, some more so than others. Conceivably, some states will raise tax rates on high-income earners. Doing this, however, may simply cause a state to export a lot of its upper incomers.
by: Jon Tidd