A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
Tax Cuts Now, Tax Reform Later
08/14/2012 4:13 pm EST
Extending the Bush tax cuts now and saving tax reforms for after the elections would be the most responsible and logical decision on the part of Congress, explains Robert Green.
As many traders and investors know, the Bush tax cuts are set to expire at the end of 2012. We’re talking about that question though today with our guest, Robert Green. Robert, you have some thoughts on whether or not this is actually going to happen at this point.
It certainly must. They must extend—punt again—as they did two years ago. It’s too close to the deadline. It’s too disruptive to change it. Everyone agrees, it’s only a temporary change with the promised tax reform on the horizon. Why make two changes? Last-minute changes cause a lot of destruction to the economy.
Look at the cost-basis crisis, where they passed those changes last minute to Intel brokers and tax payers were left holding the bag. So I say punt early. I know both parties want it to be a campaign issue, but there are plenty of other things to campaign about.
Well, you brought up the idea of a campaign issue. Of course, being an election year taxes are going to be a big topic. How are the parties going to deal with this then?
They can campaign on tax reform, but there is no time to campaign on the Bush tax cuts. It’s kind of beating a dead horse. Everyone knows their positions, but the economy is slowing. It’s sputtering. We’re entering a potential recession. We have the fiscal cliff on our backs around the corner. There is no room for all of that. The fiscal cliff on top of the bad economy will lead to a potential recession. That’s not good for either party, and that’s not good for the country.
Will the debt-ceiling negotiations allow a punting of the tax cuts? Yes. Because as the world faces meltdown, the US dollar is strong—that we are the reserve currency is not in question—and there is room to punt the tax cuts.
Now, you brought up the IRS just in passing there a moment ago. What are the implications from their perspective?
Well, the problem is that the politicians make deals, backroom deals, and then someone in the IRS has to write rules. Look at Dodd-Frank, it’s taken two years. The cost-basis rules were passed in 2008. They rolled them out in 2011. Government malpractice totally botched it. It should be recalled. They never showed anyone the tax forms. How can you spring massive change in the tax code on the American tax payer in business in December, and have them file tax returns and 1099s in February. It’s just infeasible. It’s not realistic. So take it off the table.
What implications then would this have for investors and traders who are watching this today?
Well, if you punt the tax cuts, you don’t have to worry about tax rates rising next year. So you can do normal tax planning to defer income rather than try to accelerate income. So normal tax planning would apply, and that’s a breather for a lot of tax payers.
Thank you so much, Robert.Thank you.
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