Key Tax Breaks at Risk as Panel Looks at Cuts

In just a few weeks a deficit commission is planning to submit recommendations for balancing the federal budget by 2015. Experts predict that they will recommend getting rid of a handful of popular tax breaks including the mortgage interest deduction. Although they are popular among American taxpayers, the tax incentives reportedly cost the government about $1 trillion a year.

The Wall Street Journal reports

At stake, in addition to the mortgage-interest deductions are child tax credits and the ability of employees to pay their portion of their health-insurance tab with pretax dollars. Commission officials are expected to look at preserving these breaks but at a lower level, according to people familiar with the matter.

The officials are also looking at potential cuts to defense spending and a freeze on domestic discretionary spending. It is unclear if the 18-member panel will be able to reach an agreement on any of the items by a Dec. 1 deadline.

Even if they do reach an agreement, any curbs on current tax breaks would likely face tough sledding in Congress. The banking and real-estate lobbies have fiercely rebuffed efforts to rescind the mortgage-interest deduction in the past.

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Questions for the Tax Lady: August 23rd, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Is it true that the child tax credit would be reduced if the Bush tax cuts expire?

Yes. The Economic Growth and Tax Relief Reconciliation Act passed in 2001 doubled the child tax credit form $500 to $1,000. It is set to expire at the end of the year, and unless extended by Congress, would revert back to $500 in 2011.

Question #2: What is the difference between an Individual Taxpayer Identification Number (ITIN) and a Social Security Number (SSN)

Taxpayer identification numbers are assigned to individuals that do not qualify for a Social Security number but may need to file a tax return. ITINs are often given to resident aliens living in the United States. While a taxpayer may use his or her social security card as proof to work in the United States, an ITIN does not serve as verification of one’s ability to work in the United States.

Obama's Budget 'Cheats' (by $98 Billion) in Reporting Cost of Child Tax Credit & EITC Expansion

From the Committee for a Responsible Federal Budget via TaxProf:

A few months ago, we pointed out that the Administration was cheating in its Mid-Session Review budget baseline. Essentially it was taking policies which President Obama had signed into law as temporary, under the stimulus bill, and assuming them as permanent. The implication being that, if the policies were a part of the baseline, they wouldn't need to be paid for when enacted.

[T]he Administration says it should be able to measure its policies off of a "current policy" baseline. We disagree; if President Obama wants to extend the Bush tax cuts -- the same ones which he criticized the Bush Administration for not paying for -- he should have to offset them, or else fess up to using them to increase our debt. For the sake of argument, let's accept that the Administration should be allowed to budget from a current policy baseline. The result would remain the same—they are cheating.

The Administration is taking two tax provisions from the 2009 stimulus bill -- expansions of the child tax credit and the EITC -- and claiming them as part of the "current policy" Bush tax cuts.

The Administration didn't inherit these policies, they created them. And worse, still, they created them as explicitly temporary, under a stimulus bill which they claimed was meant only to help bring us out of this recession.

Yet the White House wants to continue these policies, and they don't want to pay for them. So what do they do? They hide these policies in their baseline, in the hopes that they won't have to. For the tax cuts, as Bob Williams of TPC points out, they don't show this until "footnote 5 on page 170 of Analytical Perspectives."

So how much money is involved here? Well, putting these measures into the baseline makes the President's tax cuts for families appear to cost $143 billion over ten years, when they actually cost $241 (excluding the Bush tax cuts).

Spend. Cut. Obama's Tough Spot on Debt

Tomorrow night President Obama will deliver his State of the Union speech, and tidbits of its contents have been leaking to the media. The President will no doubt spend much of his address before Congress to discuss the national deficit and job creation. CNNMoney.com posted this useful article on topics the President is likely to touch on; you can find a snippet of their article below or head on over to CNNMoney.com for the full story.

President Obama's State of the Union address will raise the curtain on how he plans to tackle the unsustainable growth in U.S. and our debt over the next decade.

At the same time, he'll be engaged in a tough balancing act: Laying out how he'll close the gap while making proposals to boost hiring and help the middle class.

Obama is set, for instance, to offer a number of sweeteners such as nearly doubling the child care tax credit.

How can he square the circle?

For one thing, the expectation is that most deficit-related measures he proposes wouldn't be implemented before the economy regains a stronger footing.

"Economically, to pull greatly back at a time of enormous economic uncertainty and recession ... could possibly have a very negative impact on the continuing recovery," White House spokesman Robert Gibbs said Monday.

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Tax Advantages to Having Kids?

Apparently, the IRS wants you to have kids, and they have several ways to offset the cost of raising them.

The Child Tax Credit applies to qualifying children age 17 and under. This credit can be applied so long as your total tax due is more than the credit, and you meet certain income requirements (Modified Adjusted Gross Income under $110,000 for married filing jointly, $75,000 for single, and $55,000 for married filing separately). This credit can be up to $1,000 per qualifying child.

Taxpayers who do not meet those two criteria can still claim part of the credit and may be able to claim the Additional Child Tax Credit. See IRS Publication 972 to determine your total Child Tax Credit.

Additionally, if you have children under the age of 13 and you pay for childcare so you and your spouse can work, you may qualify for the Child and Dependent Care Tax Credit. This allows you to credit up to 35% of qualifying expenses.

Even better, these are not exclusive credits. If you have children who meet all qualifications, you can claim each of these credits, though certain other credits may reduce the amount you claim (such as the First Time Home Buyer Credit). As with all tax-related information, you should take the time to do the math for yourself, or ask a tax specialist.

Not that these tax credits should spur you to have a child. But, since the projected cost of raising a child to the age of 18 (not including college tuition!) is just shy of $200,000, parents need all the help they can get.