Your Taxes, Your Money: Talk to Congress before H&R Block

We all start thinking about taxes this time of year, knowing that the April 15th IRS deadline will come sooner than we think. We wonder about how to file (e file or snail mail?), who should file (should I do it myself or use one of those companies on TV?), and how much we’ll get back (or will I have to pay?). We also wonder who decided all of these rules and regulations.

Well, in a nutshell, we did. We elect the representatives to Congress that pass the tax laws that tax the house that Jack built. These laws affect us come tax time and every day that we work, earn interest, and make any number of choices with our money.

What Congress is deciding

The Senate is considering tax laws that would affect profits from selling capital (capital gains), and money earned on stocks (dividends).

Some Republicans want to extend a 2003 tax cut on capital gains and dividends in hopes of spurring economic growth, while other Republicans and Democrats feel that the $70 billion tax cut is irresponsible during lean times.

The House of Representatives already passed the extension, continuing the tax break until 2010 (It’s already set until 2008). But the Senate may have trouble extending the cut, since Republican Senator Olympia Snowe from Maine would not support it in the tax-writing committee. Those who object to the tax extension say that it benefits mostly higher-income people and businesses who don’t need government help when there is a huge budget deficit.

Tax cut supporters have a different philosophy. They say that the cuts will help middle-income Americans and encourage investment and growth, which will have positive long-term effects on the economy and all Americans.

Frist’s warning

Senate Majority Leader Bill Frist (Tenn.) has warned the tax-writing committee to extend the cuts or else he will not allow the bill to be debated on the Senate floor. A sort of one-man-filibuster, Frist’s move could backfire because the legislation contains a popular fix to a tax law that is hurting some middle-income families, called the Alternative Minimum Tax (AMT).

But Frist sees a way around this dilemma. He may separate the AMT legislation from the tax cuts to keep the solution to the AMT, which is considered necessary by both parties.

What is the AMT?

The alternative minimum tax (AMT) is an additional income tax originally intended to prevent the wealthy from wielding deductions and slipping through loopholes, thus avoiding taxes. However, inflation has caused this almost 40-year-old law to penalize the middle-class instead. There is no easy way to determine if you’re responsible for the AMT, but usually those with lots of deductions and investments find themselves paying it. In 2005, about 4 million people paid extra taxes on their 2004 tax returns because of the AMT.

The legislation would "patch" the AMT by preventing middle-income earners from paying it. The patch is a temporary fix until Congress launches a full-scale AMT reform. If Congress does not pass the patch, millions of Americans could be affected on their 2006 tax returns.

What do you think?

Who do you think should be taxed and how much? What is fair and reasonable when it comes to taxes? Do you think taxes should be higher during a time of war? When you think about all taxes pay for, do you think you’re paying your fair share?

Your input matters

Your representatives in Congress DO care what you think. Especially now -- 2006 is an election year and many representatives will be looking to reconnect with their constituents. Let your congressmen and women know what you think! Give your senators a piece of your mind! To find your reps, click here.

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Article Posted on: 2/18/2006