Don't Mess With Taxes

Remember the last election cycle when most of the campaign and Capitol Hill talk focused on the federal budget deficit?

Now, however, with the Nov. 4 balloting day just about a month away, it's pretty much crickets when it comes to the deficit.

Part of the reason is that as the fiscal 2014 year is winding down, the U.S. deficit is dropping. Last month the U.S. Treasury reported that the country's debt level fell again, on a fiscal year-over-year basis, to $589.5 billion. August's deficit was $128 billion. That's a 58 percent reduction from the fiscal 2009 deficit peak of $1.42 trillion.

There are lots of explanations for the drop in the United States' debt, and they all are being debated by economists and pundits across the political spectrum. But that's just not catching the general -- or voting -- public's fancy.

Instead, the legislative and political catch phrase now is tax reform.

Taxes aren't cheap, but tax talk is: Sadly, though, it's all just talk at this point, as any real movement toward a tax code revision has stalled.

Sure, politicians are still castigating our current tax system as a wasteful mess of complexity and sweetheart deals for those who can hire high-dollar lobbyists.

And yes, the House and Senate tax-writing committees have held hearings and even marked up a few tax bills.

A couple of Republican Senators, Marco Rubio of Florida and Mike Lee of Utah, even touted their own tax reform plan in a recent Wall Street Journal opinion piece. They say their changes would simplify the tax structure, consolidate and lower income tax rates and eliminate or reform deductions.

Good luck with that, Senators, especially that "eliminate or reform deductions" part.

Outgoing Ways and Means Chairman Dave Camp (R-Mich.) watched as even some in his own party trashed his thorough and unsparing tax code overhaul outline. A consistent complaint is that it does away with many tax breaks upon which millions of taxpayers have come to rely.

Duh! Look up reform in Webster's. The first definition says, "A change for the better as a result of correcting abuses."

Tough tax reform choices: Critics of the current humongous Internal Revenue Code say it is riddled with tax breaks that benefit a select few taxpayers. They want to erase many of these tax deductions, credits, exemptions, etc., known collectively as tax expenditures.

It will be interesting to see if any such efforts start next year, after a new Congress is seated. Note the word start. Nothing is likely to happen during the final years of the Obama Administration. But jockeying for future tax code changes will begin and, depending on which party occupies the White House in 2017, some tax changes could be realized.

As a preview, this week's Weekly Tax Tip looks at eight tax breaks that keep billions out of Uncle Sam's hands.

They affect individuals' mortgage interest, capital gains and dividends, state and local taxes, charitable gifts, federal retirement benefits and workplace-provided health care coverage and pension plans. Tax treatment changes in these seven areas would be felt mostly by middle- and higher-income earners.

Lower-paid taxpayers, however, also could take a hit if the complicated and expensive Earned Income Tax Credit also is revamped.

Altogether, these eight individual tax breaks are projected by the Joint Committee on Taxation to cost the U.S. Treasury almost $4 trillion in uncollected taxes between 2014 and 2018.

If these tax breaks are among changes made to the tax code, it could mean a simpler tax system. The new money also would help reduce the federal deficit even more. That's a win-win.

But before that can happen, members of Congress must be convinced that substantive tax reform also is a political win.

You also might find these items of interest:

• 3 popular refundable tax credits: Are they worth it?
• Obama says corporate tax inversions are 'gaming the system'
• Congress wants to consolidate the many education tax breaks