What exactly is Bush's Jobs & Growth Tax Relief Reconciliation Act of 2003, and what, essentially, are the pros and cons of it?

First, let me say that anytime we have any tax cut, anywhere, 'tis a good thing. However, all political programs have a"but" to them, and follow-up consequences that eventually negate the so-called new advantages. Tax cuts are never immune from this. Most of us know that somewhere around the corner there'll be a downside, especially to those libertarians, like me, that see taxation as outright, immoral thievery. Where taxes are concerned, what goes down must always come back up, even if it is shrouded in obscure language and technical concealers.

After a couple of months in the trenches, dealing with new tax laws and the associated headaches therein, in my capacity as a CPA, I've been meaning to hash throught the theoretical aspects of JGTRA, and mesh that with my practical experiences with said law. So now that mass confusion is at an all-time high in my profession, I'll give it a whirl.

Essentially, we got a new IRS commissioner, and two new deputies. The power of the office is increasing under Bush, and it is mainly targeting these three things: tax shelters, offshore accounts, and high income non-filers. As to tax shelters, the IRS has even demanded that public accounting firms reveal all names of clients who bought"abusive" tax shelters. Firms are fighting this, however, with little success. PWCoopers and Ernst & Young gave it up without much of a fight. Most notably, in July of 2003, concerning the public accounting firm BDO Seidman:

The United States Court of Appeals for the 7th Circuit ruled against BDO Seidman and a group of unidentified clients who sought to protect their identities.

The Court found that the investors did not establish"that a confidential communication will be disclosed if their identities are revealed in response to the summons" and that the investors'"participation in potentially abusive tax shelters is information ordinarily subject to full disclosure under the federal tax law." This decision will require BDO to turn over its client lists to the IRS. If other courts follow the 7th Circuit's lead, the IRS will be looking head-on at the substance of the tax shelters in many more cases

Yet the United States Court of Appeals for the 5th Circuit (jurisdiction: heroic Texas) ruled in favor of Compaq in a tax shelter case, striking down the IRS and US Tax Court.

The IRS audit rate, however, will not be increasing, and that is only because there is no budget for that.

The mainstream news of this Act is that the top rate drops from 38.6% to 35%; an enhanced Section 179 allows for more rapid depreciation under bonus rules; and certain qualified dividends and post-May 6 capital gains will see lower tax rates.

Money Market dividends, though, don't qualify for the lower tax rates, and most preferred stock dividends will not qualify. And many foreign dividends will also be non-qualified, but the political aspect of this is that it depends on where the dividends come from, and what treaties the US has with these countries.

Self-employed health insurance is 100% deductible for 2003, and because of the new"qualified dividends" taxed at the lower rate, investment interest expense rules are much tighter because"investment income" has therefore been redefined. This is a hugely gray area where the tax courts will see some wearing of their carpet. Remember, when politicians, congress, and the IRS pass new tax laws, it takes them years to figure out what they passed, and what it all really means. The CPAs job is to be as aggressive as possible, exploit the undefined gray areas, and to do it without landing his client under an IRS red flag.

In another weird boondoggle, a casualty loss must now be"unanticipated." In other words, if you build a home in a known avalanche area, an avalanche casualty is not deductible. I can't possibly not make the comment that FEMA/the Feds subsidize insurance in"anticipated loss" areas all the time, including areas where flooding and hurricanes thrive.

And as always, families can get up up to $4,204 back, even if they paid no income tax, due to the pet project of congressman everywhere: the EIC (Earned Income Credit).

The political objectives for this new tax law are"economic stimulus," (my favorite meaningless phrase), the elimination of double taxation on dividends, and a quicker write-off for capitalized assets. Also, the Bushians claimed to have addressed the"marriage penalty" with married joint filers getting a double standard deduction, which does absolutely no good whatsoever for married couples who itemize (instead of using the standard deduction).

Later, I hope to get to the nitty gritty of recent tax laws of interest to libertarians, a topic in and of itself, and that is The Giant Sucking Sound of AMT (Alternative Minimum Tax).