Some quick tax cut calculations

September 18, 2010

Taxes are all about the numbers.

So I thought it would be interesting to look at some other numbers released last week that could affect our future tax laws.

Inflation's effects: Let's start with some relatively good news on inflation.

The Labor Department on Friday said consumer prices were up 0.3 percent last month, the same as July.

Meanwhile, core inflation, which excludes the more volatile prices of energy and food, didn't increase.

Not to be a buzzkill, but while you and I are happy that our upcoming purchases might not cost us any more, some economists say that a little inflation may be just what the economy needs.

Inflation would make the huge amount of debt most Americans have a bit more manageable
as wages, which aren't forthcoming in noninflationary times, would rise but the amount owed would stay the same.

Plus, businesses would be more inclined to invest their cash rather than sit on it, since inflation reduces the value of stockpiled money.

shot of a young couple in front of a laptop

We're not as rich: Today's second fiscal fact comes from the Federal Reserve's Flow of Funds report released Friday.

The Fed's analysis of the second quarter of 2010 found that U.S. household wealth dropped for first time since early 2009. It was down 2.7 percent, or $1.5 trillion.

Americans' net worth, which had been slowly growing for the past four quarters, dropped to $53.5 trillion, largely due to stocks plummeting as the depth of Europe's debt crisis was revealed during the report's April-through-June period.

We're not as confident: So it's no surprise that, per our third fiscal fact, U.S. consumer confidence has hit a one-year low.

After increasing in August, consumer expectations for six months from now decreased to 59.1, the lowest since March 2009. About 67 percent of Americans in the University of Michigan survey said they anticipate "bad financial conditions" in the coming year.

The unexpected drop in September was attributed to continuing unemployment and uncertainty on whether to extend Bush-era tax cuts.

Congress warming to extending tax cuts: When you add up the numbers from those three fiscal reports, the final tax equation is not so surprising.

More Democrats are coming out in favor of extending Dubya's tax cuts, at least temporarily.

With things breaking this way and the Nov. 2 election date nearing, my previous prediction that Congress will act on the expiring tax cuts soon just might prove out.

While I'm always happy to see my crystal ball glow a bit more brightly, would Congressional approval necessarily be a good thing?

Probably not, since it basically does what the 2001 and 2003 tax cuts did — leave our tax laws in a state of limbo that others, lawmakers and taxpayers alike, will have to deal with later.

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