I realize that federal tax law is neither interesting nor pleasant to a wide number of Americans, and reading a diary about such is probably akin to having your teeth drilled without anasthetic while tolerating the screech of high-frequency feedback, but I wanted to highlight a number of changes to 2009 personal federal tax laws that not only benefit millions of Americans, but also tie back to specific 2008 Obama campaign promises.
If you're not asleep yet, I encourage you to read on:
I will start with the disclaimer that I am not a paid tax professional. I am, instead, a volunteer through the VITA (volunteer income tax assistance) program, which provides free tax preparation for target audiences - seniors, low-income, and, in my case, military (active, reserve, retired, and civilian).
I have volunteered for several years and have watched changes to tax law come and go - usually incremental amendments, or changes benefiting only a very small population (thanks to a lobbyist or influential congressperson), or changes which tend to benefit the "have-mores" more than the rest of us (capital gains taxes, estate taxes, and AMT modifications).
This year, though, in addition to the normal inflation increases, I was surprised to see a number of quite substantive changes to individual tax law, discussed on the IRS website in a rather chatty article, including
+ A "Making Work Pay" refundable tax credit of $400 for most individuals ($800 joint, even if only one person works)
+ A refundable government retiree credit of $250 per retiree
+ Additions to the standard deduction for real estate taxes and new motor vehicle taxes, for those who don't itemize
+ An "American Opportunity Credit" which expands the 2-year Hope Credit for college classes to 4 full years of post-secondary education; the cost of books can now be included. Up to $1000 of the $2500 credit is refundable, which is also new.
+ A refundable credit of up to $8000 for first-time homebuyers, which doesn't have to be repaid unless you sell your house within three years
+ Residential energy credits for both big projects (fuel cells, wind turbines) and small (energy-efficient doors, windows, and insulation)
+ "Cash for Clunkers" payments excluded from income (non-reportable)
I was excited to see that most of these changes support both progressive taxation and progressive ideas. The "refundable" tax credits result in a direct transfer of wealth to the lowest-income taxpayers who don't normally owe taxes; in the past, refundable credits were mostly limited to the child tax credit and the EIC (earned income) tax credit.
I was also reassured by the fact that several of these changes backed up specific campaign promises, namely
+ tax cuts for low- and middle-income Americans (the Making Work Pay phases out above $75K individual/$150K joint)
+ helping students afford college (American Opportunity Credit)
+ helping make it economically feasible to "go green" (Cash for Clunkers & Residential Energy Credit)
+ making it more affordable for people to own homes (First-Time Homebuyer Credit)
As President Obama has pointed out, the Making Work Pay credit immediately put money in the pockets of most American workers due to automatically adjusted withholding (less taxes taken out of paychecks) earlier this year. The other credits' impact largely won't be felt until we start filing taxes and receiving refunds this spring.
Now, many of these and other aspects of individual tax law will "sunset" in 2010, so I expect to see a lot of legislative jockeying this year, particularly as it's an election year. While these new laws reflect a substantial start, I still have a personal wish list of further progressive changes to individual tax law:
+ increasing top marginal tax rates
+ equalizing both gay and straight marriages under federal tax law
+ removing the 7.5% AGI floor for deducting out-of-pocket medical & dental costs
+ increasing the application of the Retirement Savings Credit to middle-income taxpayers
+ extending the Social Security tax to all wages (currently only applies to first $106,800 of wages)
+ making it much easier for most or all taxpayers to e-file for free, perhaps with an application right on the IRS website
+ making it easier to claim non-relatives who meet support and residency tests as dependents, and adjusting the "Head of Household" definition accordingly; and
+ revamping the capital gains tax (I'm in favor of long-term gains being taxed low, short-term gains high, and introducing a per-transaction "penny tax").
I am unfamiliar with federal corporate tax law, but I'm sure there are changes to be made there, too.
However, I applaud the substantial changes enacted by the President and our Congress that have brought us this far. I wanted to draw attention to these changes, because of the recent thunderstorms of anger that the current administration has done nothing (or at best, very little) to fulfill campaign promises. (I will touch upon what, for me, is their greatest legislative accomplishment/fulfilled campaign promise to date - the new GI Bill - in a separate diary.) I look forward to pointing out how these progressive tax law changes benefit people as I assist them with their taxes this year.
There is much more to be done, and I will not deny there have been disappointments, but here is one set of accomplishments to cheer.