Economic effects of the tax plans

Another tax filing season looms. We

hear much discussion of the need for tax

reform to strengthen our weak economy.

Let's see how some proposals might affect

us:

Increased retirement plan contributions:

Increased retirement savings will reduce

workers' current tax burden, and defer tax

on retirement account

earnings until withdrawals

begin.

These retirement

savings may

increase capital

available to businesses.

But, this will also remove disposable

income from workers' pockets.

Unemployed workers won't benefit from

the increase. And, workers are uneasy

about investing more money in the stock

market.

Accelerate tax cuts scheduled to phase

in through 2010:

Some of the tax cuts passed in 2001,

scheduled to phase in later this decade,

should be more helpful if they take effect

sooner. These include stretching the 15

percent tax bracket, increasing the availability

of the Earned Income Credit, and

increasing the standard deduction.

Accelerating the increase in the Child Tax

Credit and the Dependent and Child Care

Tax Credit will help all taxpaying parents.

Other cuts don't appear to be as helpful in

the near-term. Eliminating the itemized

deduction and personal exemption phaseouts

won't help most taxpayers. One of

the most significant tax rate reductions -

the addition of the 10 percent bracket on

the first $6,000 of taxable income - is

already in effect. The other significant

reduction is targeted at the top two brackets,

and won't help most taxpayers.

Eliminating the estate tax will help relatively

few taxpayers, and may increase taxes

paid by heirs who sell inherited property.

Accelerate business write-offs for new

assets:

The tax saved by a business from faster

write-off of the cost of new equipment

reduces the net cost of the equipment.

This increases profits from the investment

- but only if revenues increase from use of

the equipment. Without increased consumer

demand, investment in new equipment

will be a losing proposition, even

with the tax savings.

A caveat: Tax cuts alone won't solve

our economic problems. Government

spending must become more efficient, and

focused on broad benefit. Let's hope those

make it into the picture soon!

John H. Mitchell, CPA, serves businesses

and individuals in Sparks and Reno.