Moving into 2014 and the mid-term elections, the Democrats have another obstacle to overcome as 2014 is currently expected to contain over $54 billion in tax increases in addition to their voting for the largest middle class tax hike in American history, Obamacare.
With President Obama and congressional Democrats increasingly adopting a defiant tone regarding issues such as refusal to compromise on spending cuts and the debt limit, a last minute budget deal surprised many but in order to get it passed it contained issues that caused concerns for both parties.
As part of the compromise legislation, in order to get it passed other issues were left undone. Among these are the expiration of a variety of tax breaks to the tune of $54.2 billion that is expected to affect a large sector of the economy including teachers, homeowners, college students, green energy businesses and others.
The lion’s share of the increases are expected to hit businesses with the disappearance of a research tax credit as well as subsidies for wind turbines and for making green energy changes to buildings. In Colorado, Vestas, one of the state’s largest employers laid large numbers of people off last year over similar concerns over the tax credit. While the tax hikes apply to businesses, consumers ultimately end up paying for the hikes through higher prices or loss of jobs.
Among the other tax breaks expiring are tax credits for those who pay college tuition, as well as those who deduct mortgage insurance or state and local tax payments. Teachers who purchase classroom supplies out of their own pocket will also lose the credit.
By far the largest tax increase is for those who are now required to buy health insurance under Obamacare. When the case was decided by the Supreme Court, the justices ruled that the law was constitutional because the mandate was considered a tax and thus allowed under the taxing authority granted Congress in the Constitution.
When one considers that the law passed along strict party lines with no Republican support, the ruling effectively means the Democrats have enacted the largest tax increase in American history.
However, in what has become a ritual in Washington, after the first of the year Congress is expected to go back and restore some of the tax credits.
While the restoration of the credits may bring welcome relief to those qualifying for them, tax professionals have said the last minute approval of expiring tax cuts provides uncertainty to taxpayers and hinders the economy by making it difficult to engage in long range planning.