How the new tax bill may affect you
Washington — Last year, Congress passed a tax cut bill that was the legislative equivalent of Tolstoy's ''War and Peace'' - composed of sweeping themes that affect vast numbers of people.
This year, Congress has reversed direction. It passed a revenue increase measure designed to raise $98.3 billion between now and 1985. The new law, say experts who are just beginning to weigh its impact, is akin to a complicated foreign film. It is long, narrow in scope, and very hard to follow.
''It is one of the most complex pieces of legislation anyone can imagine,'' says David Kauter, a tax partner at accounting firm Arthur Young. ''Last year's (tax cut contained) broad, pervasive concepts. This bill refines provisons that have been around.''
The bill does contain a new provision. It imposes withholding on interest and dividends, which will affect many people, say tax experts. Beyond that, the bill will have a selective impact on individuals, taking money from the pockets of many different, relatively small groups of taxpayers.
Business will be harder hit, though service-oriented industries are likely to lose less than capital-intensive manufacturing firms. In any case, hefty portions of last year's business tax cuts still remain, say accountants.
From their initial study of the bill, tax experts draw these conclusions: the tax code will be fairer - and more complicated; investment decisions, for both individuals and business, will be more difficult to make; and retirement planning, notably for professionals and the self-employed, will be greatly affected.
* The Internal Revenue Service's new enforcement powers will intimidate some taxpayers, keeping them from claiming deductions that might be challenged.
Withholding on interest and dividends. The biggest ticket item in the Tax Equity and Fiscal Responsiblity Act of 1982 (''It's really amazing what they call these things,'' says one accountant.) is withholding on interest and dividends, a provision estimated to raise $10.5 billion through 1985.
''That's the one that hits the hardest,'' says Robert Rosen, a tax partner at Ernst & Whinney.
Beginning July 1, 1983, 10 percent of all interest and dividend earnings will be withheld for federal taxes. Taxpayers over age 65, whose previous year's income tax liability was $1,500 or less ($2,500 for a joint return) will be exempt from this provision. Annual interest payments of less than $150 will also escape withholding.
''Some people think this is an increase in their taxes. It's not,'' says Bob Brown, an accountant in the national tax practice department of Peat, Marwick, Mitchell. Moderate income taxpayers may now find it necessary to adjust the amount of money withheld from their salary, he says, to keep the government from taking more than its due.
But this provision will burden the withholders more than the withheld, say many experts.
''There's going to be a veritable blizzard of paper work back and forth,'' says Bernard Barnett, national tax director for Seidman & Seidman. Banks, savings and loan associations, money funds, and equity funds must now fill out millions of new government forms; the IRS will have to sort them.
The new alternative minimum tax for individuals. Current law contains two different ''minimum tax'' provisions designed to ensure that wealthy taxpayers can't shelter all their income from the IRS. The new tax bill will knock out one of these provisions and broaden the base of the other - a move Congress estimates will affect about 300,000 taxpayers and raise $1.4 billion by 1985. The provision will take effect at the end of this year. The new minimum tax will , in effect, add another set of calculations that must be made before an individual can determine whether an investment will pay off in the long run.
Other changes in individual income tax provisions. Beginning next year, the currently allowable deduction for one-half of health insurance premiums (up to $ 150) will be eliminated. Only medical expenses in excess of 5 percent of adjusted gross income will be deductible. The threshold is now 3 percent. The allowable limit for casualty loss deductions will also be raised, to 10 percent of adjusted gross income - a move experts say is likely meant to curb fraud and abuse. The IRS has long been suspicious of casualty deductions, they say.
Excise taxes. Finally, the new law contains a number of excise tax hikes that will affect individuals. The domestic air passenger ticket tax will be increased to 8 percent; the $3 per person international air travel departure tax will be reimposed. The cigarette tax will be doubled to 16 cents a pack through Sept. 30 , 1985. The long-distance phone call excise tax will be tripled to 3 percent until 1985 - after which it will be eliminated.
Next: How the tax bill affects retirement planning