Revenue Controversies Public Budgeting

American Tax Payer Act

The present taxation system for the United States is a progressive tax on income of individuals, businesses, trusts and estates. While the first Federal income tax was opposed during the Civil War and then again in the 1980s to pay off war debt and reconstruction, it was not until the 16 the Amendement in 1913 that placed a Federal tax as Constituional law. The basic outline of the Federal tax is quite simple -- gross income less exclusions and exemptions and standard deductions equals taxable amount. The taxable amount is based on family size, and varies based on filing status. The complexity arises, however, in the manner in which deductions are interpreted, tax law changes to allow certain items to be deducted, and then changes that law (e.g. credit card interest), or ways in which complex tax structures are legally able to "hide" or "defer" income from being taxed in that particular year (McCaffrey, 2006).

Certainly, most agree that governments must have a way to earn revenue for the Public Good. However, after decades of debate and one of the most complex tax codes in the world, the U.S. System does not necessarily work for everyone. For instance, in January 2013, the Senate and House both retroactively passed the American Taxpayer Relief Act of 2012 (ATRA), that permanently extends a number of major tax provisions and temporarily extends many others. The gist of the program offers a number of provisions designed to help middle and lower-middle class Americans keep more dollars:

Tax rates -- Most individuals will pay the same basic rate, based on income, but in 2013 those with income exceeding $400,000 for individuals and $450,000 for joint filers will have an increase in rate to 39.6%

Alternative Minimum Tax -- Permanently extends provisions that all nonrefundable personal income tax credits to be used to offset AMT liability.

Estate Tax -- Makes permanent the $5 million exemption amount for estate, gift, and generation-=skipping transfer tax. The top rate is increased to 40%.

Phase out of some deductions -- limts itemized deductions for incomes exceeding $250,000 individual and $300, 000 joint (The American Taxpayer Relief Act of 2012, 2013).

Naturally, such a tax provision, despite being passed by Congress, has polarized views. The pro-side of the argument is happy that over 80% of the income tax cuts enacted during the last Bush Administration become permanent, but allow most of the tax cuts for the wealthiest 1% to expire, or in real terms earn about $630 billion in revenue between 2013 and 2022. This view also holds that ATRA, over time, helps to reduce the Federal deficit by $1.5 trillion in discretionary spending and $1 trillion in program cuts (Huang, 2013).