by Jack Tenney, Publisher
Tax policy is developed very much like a Rubik’s cube works. Actually there’s a series of cubes with many interconnections. A good example is the decoupling of Vermont personal income tax rates from federal rates. Used to be the Vermont rate was 25 percent of the federal tax owed. Then the federal rates changed big time during the Reagan administration.
Another little hiccup back then was a change allowing people covered by a company-sponsored retirement plan to have an IRA. At the end of the state’s tax year, June 30, Vermont tax revenues fell like a stone.
What happened? My guess at the time was that 12,000 IBMers and state employees put $1,500 (max contribution at the time) into IRAs — like, $18,000,000 — dropping their fed tax $4 million and state tax revenues by $1 million.
The state cube had to be twisted, and the federal one then did a spin re-eliminating the opportunity for double-dipping retirement savings with IRAs.
With the current expectation of changes in tax programs for corporations, individuals, and pass-through organizations (Sub S corporations, et al), all those cubes will need a little twisting. Throw in “what ifs,” like if the Affordable Care Act is repealed as promised, and it won’t be just tax departments sweating the details. How would you like to be the one figuring the impact on hospitals, group practices, and health insurers?
Depreciation’s effect on affordable housing programs will make said programs less affordable.
Depreciation generally will be worth less — not worthless but worth less. So capital spending for industrial equipment, plant expansions, and furniture and fixtures spending may well slow.
Drop rates and there will be less incentive to make charitable contributions, invest in tax-advantaged bonds, or fund retirement accounts.
After all the rates go down, isn’t the only reasonable question left to answer, When will they have to go up?
And have a happy new year.