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Troubling tax priorities

Congress, it seems, wants to make sure that investors have happy new years through 2010.

The Washington Post reports that Senate Majority Leader Bill Frist “feel[s] strongly” that capital gains and dividends tax breaks should be part of legislation that the Senate will consider before it takes its holiday break. This is important to Frist and friends even though the law that keeps these rates low doesn’t expire until the end of 2008.

Meanwhile, those 15 million middle-income households that might have to pay more in 2006 because they’ll fall under the alternative minimum tax (more about this parallel and costly tax system can be found here) will likely have to wait.

Oh, there’s also a bill out there to ease the AMT situation for those taxpayers, just waiting for Congressional action. But what with the year winding down and holidays waiting to be celebrated, Capitol Hill has to prioritize. The decision, pass legislation that will help:

    1. Investors who will have lower capital gains and dividend taxes next year even without Congressional action, or
    2. Other taxpayers who might have to pay higher taxes on their 2006 income because the law easing their AMT hit expires Dec. 31.

Hmmm. Which to choose, which to choose …

Sure, it’s better to fully and thoughtfully consider legislation to ensure it is crafted properly and actually accomplishes what’s wanted.

And sure, laws are made retroactive all the time so those potential AMT victims will still get the bit of temporary relief Congress is debating.

But what a message Frist and his cohorts are sending by making sure that generally wealthier taxpayers who benefit from lower investment tax rates get their piece of the pie first.

Maybe Frist and company were simply following some basic year-end tax advice that I myself have given: evaluate your investment portfolio before the end of the year. By doing so, you might be able to reduce that lower-taxed investment income even further by selling stock losers to offset your gains.

But you’ve only got a couple of weeks left to do it.

If you follow Congress’s lead and wait until next year to take care of some of your investment tax business, it will be too late to save you any money on your coming return.


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