Tax Law Changes

Tax laws are very complicated and seem to be adjusted or changed year after year to meet certain needs of individuals and businesses. Just a simple search for the tax law changes in the past ten years can bring up as many as 100 results. The economy seems to be the biggest factor that adjusts each individual tax law. With the problem of inflation and other world affairs, the tax laws seem to bring a little relief to some of the major problems going on in the country. This paper will take a look at some of the tax laws that affects individuals, businesses, and both at the same time. It will cover five tax law changes from 2003-Present. These are just a few of the many tax laws that have been passed in the past ten years, but it gives a small overview of just how much influence tax relief laws provide in certain situations.

One major economic problem that the United States is currently facing is the rising gas prices. Gas prices seem to rise daily with the conflicts that arise almost daily as well in the Middle East. Since the Middle East is a major supplier of oil to the United States, the price of gas continues to rise. Without coming out and giving an actual deduction on some of the gas prices, the new tax law change that went into effect for 2005 was a deduction for the service of a energy efficient vehicle or hybrid vehicle. "For 2005, a proposed 50% reduction of the maximum electric vehicle credit and the clean-fuel deduction has been eliminated. That means you can claim the maximum electric vehicle credit allowed for a qualified electric vehicle you place in service in 2005" (MSN, 2006). Other tax law changes have come into place for electric and hybrid vehicles as well for the purchase of one.

These tax laws benefit both the individual and the business. An individual gets to purchase and service a more efficient car and saves a great amount of money on gasoline. He also then gets to have it serviced and use it as a deduction on his taxes. This is a good tax law because the new hybrid and electric cars are still such a new idea that there are many problems with them. That is one reason that many people have not purchased one. With this new tax break, it gives people more confidence to buy a more efficient car. It also helps businesses because a business can purchase one and save a lot of money on gasoline as well. Businesses generally use their vehicles a little bit more than an individual, and this would help them when they need to take the car in for regular checkups and minor problems. This tax law is also beneficial to people who serviced vehicles that use clean-fuel (MSN, 2006). This is both a social and economic tax law because it helps the individuals and the businesses in the United States.

In 2003, a major tax break was created for individuals filing 'Married Filing Jointly'. "Under the married filing jointly tax rate schedule, the 15% rate bracket ends at $56,800 ($28,400 x 2). That is up from $47,450, the amount the Internal Revenue Service had originally published for 2003" (MSN, 2003). This tax law benefited many married couples when it went into affect. Inflation most definitely caused this tax break. As the years progress, people need to make more and more to keep up with their standard of living. If a married couple gets a $2,000 raise every year to keep up with inflation, but pays more taxes because of the raise, it doesn't really help the couple in the long run. So, this law went into effect so that married couples could take the raise without having to be in a higher tax bracket.

"Under the 2003 tax law, the standard deduction for married couples filing jointly is $9,500 for 2003, up from $7,950 originally scheduled" (MSN, 2003). This is also another inflation tax law. It allows the married couple to deduct more off of their adjusted gross income to bring their tax payable down. Later, this eventually went up to $10,000. This is a social goal to help married couples not be in higher tax brackets.

Another major problem that the United States recently had to deal with was Hurricane Katrina. This hurricane caused a lot of damage and loss to the people on the gulf coast. With it came a lot of tax relief's for both individuals and businesses. For individuals, the tax relief was extraordinary. "For charity work done on behalf of Hurricane Katrina relief, you get a big break. You can deduct up to 70% of the current business allowance. Since Sept. 1, 2005, that's 70% of 48.5 cents a mile, or 34 cents a mile" (MSN, 2005). This enabled more people to go to the gulf and help people rebuild. This way, they were receiving something for their work and not feeling like their work was unappreciated. This is a different type of tax law because it does not deal with inflation or businesses; it deals with giving individuals a break because they are helping the overall outlook of a city. This tax break ended on December 31, 2005 (MSN, 2005). This could be classified as both a social and economic tax law because it is helping individuals as well as the economy in the area.

The business mileage tax break also helped many businesses during and after Hurricane Katrina. "The rate for business purposes jumped from 37.5 cents for 2004 to 40.5 cents a mile for Jan. 1 through Aug. 31. For mileage incurred AFTER Aug. 31, the mileage rate rises to 48.5 cents a mile. The rate expires on Dec. 31" (MSN, 2005). This tax change helped because many businesses had to either relocate or do extensive driving to find the materials that they needed to rebuild. It also helped many businesses that were sending supplies into New Orleans because they were working double-time to get the supplies that were needed into the area. This is more along the lines of an economic goal for the sake of rebuilding.

The mileage tax changes for Hurricane Katrina were a very good tax law adjustment for the time period. All of these laws expired on December 31, 2005, but they still had a great impact on the rebuilding of the gulf coast. Tax laws like these remind taxpayers that taxes are not just put into place to fund the government. "Although most people believe the sole purpose of the income tax is to raise revenue to operate the government. This belief is not accurate. The income tax is used as a tool of economic and social policies" (Whittenburg and Altus-Buller, 2006).

In 2002, small businesses got a good tax relief dealing with depreciation of plan assets. "The Job Creation and Workers Assistance Act of 2002 included a provision that allows up to 30% of qualified property to be deducted in the year the asset is placed into service" (H&R Block, 2003). This allows small businesses to write off their assets quicker so that they have a lower income tax at the end of the year. This is a great tool for businesses that are just starting out because then they do not have a large income tax at the end of the year to worry about. The only problem with this tax law is that if the plant assets are written off earlier, then the net income of the business will be hire in the later years after the plant asset is gone. This may not be a bad thing if the business does well and does not need the additional depreciation tax cut, but if the business is still doing the same as it did when it started, then tax problems will most definitely arise. This is a major economic tax law change because it gives the small business owners the ability to have a chance to grow without going bankrupt in their first year.

The last tax law change that will be discussed is the increase in the amount allowed for an exemption. "The amount you can deduct for each exemption has increased from $3,100 in 2004 to $3,200 in 2005" (IRS, 2006). This is simply another deduction for inflation in society and most definitely benefits the individual. It is a social tax law that helps the individual in the costs of raising a child. The cost of raising a child is obviously much higher then $3,200 per year, but it allows the individual to bring down the adjusted gross income more so that they are in a lower tax bracket.
As this paper describes, tax laws are put into place for many different reasons, and sometimes it is almost impossible to describe them as social or economical. Sometimes the law is put into effect to benefit both, and sometimes it is put into effect only to help one or the other. Either way, the tax law changes are almost always beneficial to businesses and individuals. In years to come, it will be interesting to see what new tax laws will be enacted. It is almost certain that the amount for exemptions will continue to rise as well as the amounts for standard deductions. Tax brackets will also continue to fluctuate as inflation continues to play a major role in the economy of the United States. Overall, it is important to know what tax laws are being put into place year after year so that the maximum deduction and exemption amounts can be used on the tax forms for the benefit of the individual.

References
H&R Block, (2003). Additional (Bonus) First-year Depreciation for 2003 and 2004. Retrieved August 19, 2006, from Latest Tax News from H&R Block Web site: http://www.hrblock.com/taxes/fast_facts/
articles/jga/depreciation.html

IRS, (2006). Exemption Amount Increased. Retrieved August 19, 2006, from Tax Law Changes for Individuals Web site: http://www.irs.gov/formspubs/article/
0,,id=109876,00.html#exempt_2005

MSN, (2003). Married couples get 2 big breaks. Retrieved August 19, 2006, from 2003 Tax Law Changes Web site: http://moneycentral.msn.com/content/P65581.asp

MSN, (2005). Auto mileage rises in '05; a break for Katrina relief. Retrieved August 19, 2006, from 2005 Tax Law Changes Web site: http://moneycentral.msn.com/content/P133785.asp

MSN, (2006). Electric and clean-fuel vehicles. Retrieved August 19, 2006, from 2005 Tax Law Changes Web site: http://moneycentral.msn.com/content/P135126.asp

Whittenburg, G, & Altus-Buller, M (2006). Income Tax Fundamentals.Mason: Thomson, South Western.