Johnny Depp and the New Tax Law

By :: December 17th, 2010

When the President signs the big tax deal later today, will he be cutting income taxes for most families or sparing them a tax hike? Will he be slashing the estate tax or resurrecting it?

Those questions have a clear answer in the official budget world: the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 cuts both income taxes and estate taxes. Period. Why? Because current law is the official yardstick. And that law says that the 2001 and 2003 income and estate tax cuts will expire when the ball hits bottom in Times Square.

But existing law is not the only reasonable benchmark. Another way to look at things is to ask how taxes will change from 2010 to 2011. Viewed that way, extending the 2001 and 2003 cuts is not a tax cut; it’s a way to prevent a tax hike. And the estate tax deal is actually a tax increase: there was no estate tax in 2010, but there will be one—though small by historical standards—in 2011. In addition, as noted by Bob Williams, many low-income families will see their taxes go up because the gains from 2011’s payroll tax holiday will be more than offset by the expiration of 2010’s Making Work Pay tax credit.

Depending on your perspective, then, today’s tax deal is anything from a tax increase to a major tax cut. It all depends what baseline you use for measuring.

Which brings us to Johnny Depp. Depp plays the title character in the new film “The Tourist”. He doesn’t know anything about budget baselines, but he does learn how perceptions depend on what your benchmark is:

Inspector: Now, you wish to report a murder?
Depp: No, some people tried to kill me.
Inspector: I was told you were reporting a murder.
Depp: Attempted murder.
Inspector: Ah, that is not so serious.
Depp: No, not when you downgrade it from murder. When you upgrade it from room service, it’s quite serious.

Should today’s tax deal be compared to room service or to murder? I leave it up to you, dear reader, to decide.

9Comments

  1. Michael Bindner  ::  4:48 pm on December 21st, 2010:

    Oh, the room service line is good – too bad the movie was panned. Depp may need some of that extended unemployment insurance coverage.

  2. Michael Bindner  ::  4:48 pm on December 21st, 2010:

    I still blame Pelosi for this. The budget which had reconciliation instructions to do health care should have also had instructions to make the middle class tax rates permanent. Now the can is kicked down the road. This could be good news for permanent tax reform – however I don’t suspect that the coalition for permanent compromise exists right now. Is tax reform sexy enough to be an election issue in 2012? I doubt it, although I may be willing to give it a try.

  3. Classic Pocket Knife  ::  9:03 pm on February 2nd, 2011:

    Indeed Depp is a moron when it comes to american plolitics.

  4. TaxVox » Blog Archive » Does the President’s Budget Raise Taxes or Cut Them?  ::  10:39 am on February 17th, 2011:

    […] noted expert Johnny Depp demonstrated some months ago, it all depends on how you measure […]

  5. Does the President’s Budget Raise Taxes or Cut Them?  ::  12:31 am on February 23rd, 2011:

    […] noted expert Johnny Depp demonstrated some months ago, it all depends on how you measure […]

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