I made a comment to my wife that I was concerned about my annual tax liability staying the same when the amount allotted from each paycheck was less. She asked for a little clarification of what I meant and this spewed forth:
The taxes being taken out of my paychecks are very similar to our property tax being rolled into the escrow with our mortgage. We pay a little extra every month so it builds up to what we have to pay for yearly taxes. Then when the taxes come due, the money is already there and we don't have to pay any more.
The amount of taxes I owe at the end of the year is based on how much I make. I have a certain amount taken out of each paycheck to go toward that amount. This is basically how the tax refund works. I give the government money from every paycheck to count toward my yearly tax liability. At the end of the year if I've given them too much then they give me back the difference. But, if I've given them too little then I have to pay the difference.
Here's where my question comes in. If the amount of taxes that I owe stays the same, and my exemptions/the government is taking less from each of my paychecks, then I will have a smaller refund or I might owe at the end of the year....unless they have made some adjustment to my overall tax liability. I assume they would be blowing themselves on national television if they had done that so I don't thinks it's happened.
This could mean that millions of Americans who have been claiming the same exemptions on their paychecks for years could have a dramatically different amount that they owe the government this year.
It's just like the original version of the new homebuyer's credit. Under the version that we [my wife and I] took advantage of, the credit is a one time gift from Uncle Sam thanking us for stimulating the economy by buying a house. Under the version from the year before (the way I understand), it was basically an $8000 loan. They were getting an $8000 advance on their next years' taxes. Meaning, those people have to pay that $8000 back the next year (that year being this one).
SO!!! When tax time comes around next year we will have millions of homeowners (whether they're victims of a foreclosure or not) who now owe $8000 more than usual due to the original homebuyer's credit/loan. AND you combine that with every working American not having as much money built up toward their yearly tax liability because of the hidden tax break. This could make for a very bad combination. Throw in outside factors such as the terrible housing market, the equally terrible job market, the ever-declining value of the dollar, and the "war" in Afghanistan, and you get a potential catastrophe.
Okay...I got a little dramatic. But you can see where I'm going. Tax credits are great as long as they're real. Don't have them be a hidden loan or something that could blindside us at tax time.
Sorry to get into something so serious. Election season has me steering away from normal Apollo 13 references and more toward political issues.
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