Neither the imminent end of the 2001 and 2003 "Bush tax cuts" nor H&R Block's (HRB) recent acquisition of SecondStory, the makers of TaxAct personal productivity software, really mattered much to me when I first read about them a few weeks ago.
On one hand I don't have to worry about the much maligned high end of the expiring tax-table income scale nor -- conversely -- the demise of the 10% bracket. I guess I do lose the 5% of the upper bound of the lower tax bracket but that's just a couple of hundred bucks, right? And I get hit with the marriage penalty again but life circumstances have changed since 2001 and it might make sense now for my wife and I to file separately. And if the rates change on the middle brackets a few points, "Hey, 2000-2009 was a good decade. But all good things must end."
And although I do use TaxAct, when I first bought it I did not care that the company behind it was about 10 years old and founded by a couple of guys in Cedar Rapids so why should I care now if the software is now the responsibility of a big multinational accounting firm. I can still use next year's version of TaxAct to see if my wife and I should file separately.
But on October 28, the two seemingly unrelated news items crossed paths. Bloomberg reported in a news story that was widely distributed in print and on the web that "middle class taxes" were going to increase 50% in 2011 if the Bush tax cuts were not extended. Specifically the article said
"For a married couple with an income of $80,000, that would drain an extra $221.48 in withholding from a semi-monthly paycheck, according to calculations by the Tax Institute at H&R Block."
That's an extra $5000 a year to the IRS, not the 10% or so increase in taxes (about $1200) that I had estimated on the back of an envelope (and had already figured out how to defer or avoid). True the Bloomberg story -- based, as the above quote says, on H&R Block calculations -- is based on IRS withholding tables as opposed to IRS tax tables. But certainly the U.S. government does not encourage people to withhold $3800 more than they are likely to owe does it?
So I googled around the web and found a source that says the tax increase likely to hit middle class families in 2011 due to the expiration of the Bush tax cuts is more in the lower range I had expected. Nick Kasprak at the Tax Foundation has put together an interactive, web-based tool to simulate its effects (see www.MyTaxBurden.org). The Tax Foundation tool is more detailed and transparent than H&R Block's.
I don't know which source has the numbers right. But if H&R Block has it wrong, do I want to continue to use TaxAct?
And if experts apparently disagree on this little bit of basic personal tax calculating when it comes to simple income taxes, imagine the effects of large upcoming U.S. government regulatory changes [e.g., Obamacare, Frank-Dodd (or is it Dodd-Frank?), EPA-imposed cap and trade] on relevant ERP software.
(As an aside, adapting enterprise software to such changes is why IT users pay what many IT analysts call onerous maintenance fees. Software maintenance is about content, not fixing things.)
-- Dennis Byron
(No financial interest in companies mentioned)