CONGRESS FURTHER DELAYED the recovery from the recession by at least a month when it adjourned to campaign for the midterm elections without dealing with tax issues.
Its failures are a disservice to the country. Both political parties put ideological purity and political calculation ahead of the nation's welfare.
The two key issues are the extension of the Bush-era tax cuts and the adjustment of the alternative minimum tax. Delaying the decisions and actions on these two issues has made it impossible for taxpayers, especially small businesses, to plan for next year.
Owners of S corporations aren't going to hire additional workers or invest in plant expansion with tax uncertainty hanging over them. Job creation will continue to sputter along, and consumer spending will remain weak because workers are uncertain about their jobs.
Businesses don't need the uncertainty over taxes on top of the uncertainties caused by the health care reform law and the financial-reform law. Both have innumerable sections that must be fleshed out into regulations by bureaucrats.
Unfortunately, with the midterm elections in sight, neither party in Congress is willing to compromise.
The Democrats want to preserve the Bush-era tax cuts for individuals earning $200,000 or less annually and couples earning $250,000 or less a year, but cancel them for upper-income taxpayers. They believe that the country can't afford the additional $800 billion in revenue over 10 years that extending the cuts would cost.
The Republicans want to extend the cuts to all taxpayers, arguing that increasing taxes on any group could threaten the recovery.
An easy compromise neither party has been willing to consider is to extend the current tax rates for everyone for two years or until the country's gross domestic product is growing steadily at an annual rate of more than 2.5%. This would eliminate the chance of hurting the recovery and minimize the revenue losses.
AMT ADJUSTMENT
Failing to adjust the AMT is as serious as failing to decide on the future of the Bush-era tax cuts.
Without congressional action, as many as 27 million taxpayers will owe $102 billion in taxes for 2010. That also amounts to a recovery-threatening tax increase.
The number of taxpayers subject to the AMT has increased because taxable income not subject to the tax is scheduled to be lower in 2010 than in 2009.
The rates are $33,750 for single and head-of-household filers, $45,000 for married people filing jointly and for qualifying widows or widowers, and $22,500 for married people filing separately.
Unlike ordinary tax rates, the AMT has only two tax brackets: 26% on the first $175,000 of AMT taxable income and 28% on the remainder of AMT taxable income. For married people filing separately, the 26% bracket ends at $87,500.
The problem arises every year because Congress has failed to index the income levels for inflation.
After the elections, Congress will have only a few weeks to fix the mess before it breaks for the December holidays. But the Obama administration also has talked of tackling immigration reform and energy policy during the lame-duck session.
The first order of business must be to sweep away the cloud of uncertainty about tax liabilities for both businesses and individuals.
Only after that should the administration and Congress turn their attention to other matters.
