The Year in Review: Time to Celebrate the Biggest Tax Mishaps of 2013!

December 23, 2013 — Leave a comment

The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, has announced its seventh annual Lump of Coal Award for the worst tax and fiscal policies of 2013. The year was a curious mix of really bad ideas and dithering. After all, Congress’s finest moment may have been its December budget mini-deal—a decision that effectively ignored every one of the great fiscal questions facing the nation. The winners of the 2013 Lump of Coal Award are:

10. The American Taxpayer Relief Act of 2013. True, Congress and President Obama pulled the nation back from the dreaded fiscal cliff on New Year’s Day. But they did it in a spectacularly ugly way. Lawmakers pulled the trigger on the mindless spending cuts called the sequester—once thought to be too awful to contemplate. But that wasn’t all: ATRA also made permanent a massive tax cut for nearly everyone (except the very rich) that overwhelmed any deficit reduction from the sequester.

See Related: The Least You Should Know About the Fiscal Cliff Deal

closed-ofa9. The Affordable Care Act’s Online Health Exchanges. Those of us who have watched the IRS struggle for decades to upgrade its computer systems probably should not have been surprised at the fumbled roll-out of Except perhaps for the NSA, which may do tech a bit too well, the U.S. government just doesn’t do computers.

8. Tax Reform. House Ways & Means Committee Chair Dave Camp (R-MI) and Senate Finance Committee Chair Max Baucus (D-MT) did a joint national tour to promote tax reform. Both released many provocative ideas for business reform. But neither would publicly say what individual tax preferences they’d eliminate or how much revenue their new tax code would produce. Neither President Obama nor congressional leaders of either party showed any enthusiasm for reform. And the year ended with Baucus preparing to resign his Senate seat to become ambassador to China.

7. Phantom tax hikes. Congressional Republicans rejected tax increases as part of the just-approved 2014 budget agreement. But they did agree to more than $30 billion in new revenues over the next 10 years. Calling them fees and premiums makes some lawmakers happy, but as Bob Williams of the Tax Policy Center asked the other day, why is it a tax when I pay a mandatory levy on gasoline but a fee when I pay a mandatory levy on an airline ticket to fund airport security? Oh, I know. The gas station guy doesn’t make me stand with my legs spread and my arms in the air when I fill-up my tank.

(Image Credit: Politico)

(Image Credit: Politico)

6. The IRS Tea Party Scandal: It turned out the IRS wasn’t singling out the Tea Party in its reviews of requests by political groups for 501(c)(4) tax exempt status. It was merely bungling the job on a bipartisan basis. In fairness, the IRS is the last agency that should be asked to define acceptable political speech. The service has proposed new rules to sort all this out but they’ve only generated more controversy.

5. START-UP New York (SUNY Tax-free Areas to Revitalize and Transform Upstate New York) gives businesses and their new employees ten years of tax breaks for opening on or near public college campuses. Under the plan, officially launched in October, both employers and new workers would be exempt from taxes.

Gov. Andrew Cuomo insists the subsidies will attract new businesses and notes the state received 800 applications by mid-November. But targeted tax cuts rarely create new businesses, they just move old ones around. And it is hard to understand how two sets of workers—those who pay income taxes and those that don’t–can work side-by-side.

4.  The tax extenders. More than 60 targeted tax breaks will expire on December 31. Most are terrible policy. A few make sense. Congress makes no effort to distinguish which are which. It just mindlessly extends them—and will probably do so again sometime in 2014. This uncertainty largely defeats whatever small benefit these subsidies have. The only real winners: The lobbyists and politicians for whom the perpetual prospect of expiration have become something of an annuity.

3. Internet sales taxes.  In 1992, when shopping on the Web was still exotic, the U.S. Supreme Court said states generally could not collect taxes on mail order sales but practically begged Congress to sort out how states might. Six years later, Congress created a commission. Nothing happened. Last month, the U.S. Supreme Court said states do have the right to collect taxes on many online transactions and again asked Congress to help set the rules. Maybe next year.

See Related: Want Tax Free Black Friday? Get Online.

2.  Immigration Pork. Ever wonder why Congress can’t balance the budget? Last spring, a bipartisan group of senators was scrambling to pass a bill that would create a “pathway to citizenship” for millions of undocumented people living in the U.S. Many lawmakers, especially from the southwest, were reluctant to support the measure. The sponsors added $40 billion in immigration pork—border agents, drones, fences and the like—even though the net number of people crossing the U.S./Mexico border had already fallen to zero. The bill passed. Next year the House may take a whack at immigration. More pork will be distributed.

1. The government shutdown. The GOP shut down the government (twice) during Bill Clinton’s presidency and paid a huge political price. So why not do it again? Now, we hear that hard-line conservatives can’t wait to use the leverage of a debt limit breach to win concessions from the White House next spring. In the words of John Boehner, “Are you kidding me?”

See Related: Shutdown Ends, Tax War Begins Again

If 2013 is remembered for anything—and perhaps it is best forgotten—it may be for all that didn’t happen. Here’s hoping 2014 is more productive.  All the best from all of us at JDKatz for a good holiday season and a Happy New Year.

JDKatz: Attorney's At LawJDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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