One of the key issues in the recent election was federal taxes, a subject that affects individuals and businesses. Most people would agree that there are serious problems with the current state of taxation—there is built-in uncertainty because rules in recent years have been enacted on a temporary basis and may or may not be extended…there is preferential treatment for certain groups, including various industries with successful lobbyists…there is debate on how to pay down the national debt…and we are reaching a tipping point where more than half of individuals will pay no taxes (the Tax Foundation found that currently about 47% either don’t have to file, or file and pay no taxes, or have negative income taxes).

Many experts have said that one of the ways to get the economy moving is to create certainty about taxation, keep taxes low, and get the national debt under control. Can this be done? Despite campaign rhetoric, it won’t be easy. Still, with changes afoot in Congress, it may be possible.

What’s different post-November 2? For one thing, there may be more members of Congress attuned to taxation. It’s helpful to note that there are a growing number of Congressional members who are CPAs whose profession focuses on taxation and other financial matters. In addition to the five who won reelection, two new members are accountants.

Rep. Dave Camp (R), Michigan, will presumably become the chairman of the House Ways and Means Committee (the committee that initiates tax legislation). His “signature issue” has been lowering and simplifying tax rates for individuals, families and employers.

Also, there are a growing number of Congressional members attuned to small businesses and their tax concerns. More than 80% of the 290 candidates endorsed by the NFIB were elected. Many of these members have been small business owners themselves.

The first test on taxation of the new political landscape in Washington will be in the lame duck session of Congress set to convene on November 15. Key tax issues to watch:

  • The extension for 2010 of provisions that expired at the end of 2009, including the research credit and higher exemptions for the alternative minimum tax (AMT).
  • The extension of the Bush tax cuts after 2010, including favorable rates on capital gains and dividends.
  • An increase in the estate tax exemption amount for 2011 and beyond. Currently it is set to be $1 million per person, but could be raised to $3.5 million (the amount in 2009), $5 million, or even higher.

When the 112th Congress is seated, expect that more tax matters will be on the agenda, including discussion of tax simplification (or a flat tax) and the creation of a value added tax (VAT).

Bottom line: Taxation is a complicated issue and there are no easy fixes. Whether a new Congress can work together more effectively on tax issues than the last one remains to be seen.