Tax Update Blog: Tax Reform Archives
Does 20 percent trump 9 percent?
October 28, 2011
GOP Presidential contender Rick Perry has made a bit of a splash with an optional "Flat Tax"' proposal. I don't like optional tax computations because in real life they mean everyone has to compute their tax one more way to find which way gets the best result. Think of it as an Alternative Maximum Tax. It also fails to eliminate all the deductions that it could, leaving rates higher than they would need to be.
That said, it's great that tax proposals are part of the campaign. We're overdue for a tax overhaul, and even though none of the plans up for grabs will ever be enacted, we are probably seeing some of the pieces of the next tax system come together.
More coverage:
TaxProf
Tennessee Tax Guy
Going Concern
Dan Meyer
Also:
Robert D. Flach
Link • Tax Reform • Comments (2) • TrackBacks (0) Bookmark: del.icio.us • Digg • reddit
Tax Reform Carnival!
October 21, 2011
I haven't heard about the massive parties scheduled to honor the 25th Birthday of the Tax Code tomorrow, but I've been out of town, so I probably just missed the news. No doubt they will look something like this:
If you choose a more sedate way of observing the holiday, the tax blog world is all over it already, so there's your party. I'll round up their observations in this impromptu Tax Reform Carnival. I'll add to this list of blog observations as I notice them; if I miss yours, please put the link in the comments and I'll add it to the party.
Going Concern, Joe Kristan: Who's Afraid of Tax Reform?
Tax Prof: Graetz: Tax Reform 1986 -- A Silver Anniversary, Not a Jubilee
TaxVox, Howard Gleckman: Five Lessons from the 1986 Tax Reform Act
TaxVox, Gene Steurle: Does the Tax Reform Act of 1986 Offer Lessons for Future Reform?
Robert D. Flach (Forbes guest post): Wandering Tax Pro Remembers The Tax Reform Act of 1986
Tax Policy Blog, Scott Hodge: Happy Anniversary Tax Reform Act of 1986
TaxGrrrl: I'm From the Government and I'm Here to Help
Update, 10/22
TaxProf, Forbes: Today's 25th Anniversary of the Tax Reform Act of 1986
Kay Bell, 25 years of tax reform. More on the way?
Link • Tax Reform • Comments (1) • TrackBacks (0) Bookmark: del.icio.us • Digg • reddit
Hopeless candidate, sensible proposal
September 01, 2011
Jon Huntsman is chasing the Republican Presidential nomination by pursuing Republican voters who think they are just too darn smart for Sarah Palin. This has developed him a loyal following of about two people.
Now he's made a bold move to expand his base to the much larger, if still insignificant, population of tax nerds. He has actually made a sensible tax proposal, as the Tax Prof reports:
Republican presidential candidate Jon Huntsman today released a 12-page jobs plan with these tax components:Simplify The Personal Income Tax Code And Lower Rates. Rather than nibble around the edges of the existing tax code, Gov. Huntsman will introduce a revenue-neutral tax plan that eliminates all deductions and credits in favor of three drastically lower rates of 8%, 14% and 23%. Eliminating deductions and credits in favor of lower marginal rates will yield a simpler and more efficient tax code, decreasing the burden on taxpayers.
Eliminate The Alternative Minimum Tax. Under the new simplified plan, Gov. Huntsman will eliminate the Alternative Minimum Tax, which is not indexed for inflation and is penalizing an increasing number of families and small businesses.Eliminate The Taxes On Capital Gains And Dividends In Order To Eliminate The Double Taxation On Investment. Capital gains and dividend taxes amount to a double-taxation on individuals who choose to invest. Because dollars invested had to first be earned, they have already been subject to the income tax. Taxing these same dollars again when capital gains are realized serves to deter productive and much-needed investment in our economy.
Reduce The Corporate Rate From 35% To 25%. The United States cannot compete while burdened with the second-highest corporate tax rate in the developed world; American companies and our workers deserve a level playing field. With high unemployment, it is important that we not push corporations and capital overseas. We need employers to be based in America if they're going to provide jobs to Americans.
It akes a lot of sense; you can tell because Linda Beale hates it. More from Going Concern and Instapundit.
Link • Tax Reform • Comments (2) • TrackBacks (0) Bookmark: del.icio.us • Digg • reddit
Execs tell Congress: Low rates > targeted tax breaks
June 08, 2011
An underreported story in the L.A. Times:
Executives from four large U.S. companies told lawmakers that they would give up lucrative tax breaks in exchange for significantly lowering the 35% corporate rate, spurring efforts to overhaul the tax code.Executives from Boeing Co., Sears Holding Management Corp., Emerson Electric Co. and Perrigo Co., a leading pharmaceutical manufacturer, said Thursday that they prefer the simplicity and certainty of a rate as low as 25% over the complexity of calculating frequently shifting tax breaks.[...]
Tax Analysts coverage of the story ($link) shows that these executives are even willing to give up sacred cows like the research credit:
Other panelists, however, singled out popular tax expenditures like the research credit as an example of expenditures that corporations would relinquish for a reduced corporate income tax rate. The complexity of the research credit and the nearly annual debate over whether it should be extended make Boeing prefer a "significantly lower rate," [Boeing President James] Zrust said. Last year, Boeing spent almost $4 billion in research and development, he added.The research credit has also created several compliance headaches for Boeing. According to Zrust, more than 30 IRS agents are working on a continuous audit of the company. In December 2010, the company resolved an IRS audit that involved several issues, including the research credits from 1998 to 2003, he said.
So there is a constituency for a tax reform with a broad base and low rates. But there will be opposition, based on this from the Times:
But 17% said they preferred to keep their tax breaks no matter how much the rate was cut
Opposition would include whole industries, like the "renewable energy" industry and the low-income housing credit lobby -- not to mention the industry of tax credit consultants. Like all tax reform efforts, the next round of tax reform will pit those riding the gravy train against those who are pulling it. But the willingness of a big research credit recipient like Boeing to trade its breaks for lower rates is a good sign. At the state level, the Quick and Dirty Iowa Tax Reform Plan shows the way.
Via Tax Policy Blog.
Link • Tax Reform • Comments (0) • TrackBacks (0) Bookmark: del.icio.us • Digg • reddit
Corporation tax reform: what about pass-throughs?
March 04, 2011
The Obama administration has focused its tax reform talk so far almost exclusively on corporation tax reform - to the extent that the Treasury Secretary has even floated the idea of eliminating pass-through business taxation. Pass-throughs, like S corporations and partnerships, do not pay tax; they instead "pass through" their taxable income to their owners, who report the income on their own returns.
The elimination of pass-throughs is almost certainly stillborn. Corporation tax reform -- a lower rate with fewer deductions and credits -- is much more possible. TaxVox has a good Howard Gleckman post about some of the problems it would pose:
Corporations would lose the benefit of some tax breaks but in return may pay at a top rate of as low as 25 percent (Obama has yet to propose a plan so I am guessing here). Non-corporate businesses would lose those same deductions and credits, but get no benefit from the corporate rate cut. In fact, Obama would have very successful pass-throughs, whose owners pay the top individual tax rate, pay even more.He’d raise the statutory rate to 39.6 percent and restore the phase-outs of itemized deductions and personal exemptions (worth about another 2 percentage points). Thus, he’d cut the top corporate rate to, say, 25 percent, while raising the top rate for non-corporate businesses to 42 percent. If Congress wanted to use some tax revenues to help reduce the deficit, it could raise those individual rates even more.
To make things more complicated, Obama would also raise the capital gains rate to 20 percent (with another add-on in the law to help pay for health reform). This would further disadvantage double-taxed corporations.
The individual rates would actually be worse in many cases. The "unearned income" surcharge in the Obamacare health care reforms would add another 3.8 percent to the tax rates for "passive" pass-through owners and to capital gains. The top rate for business income taxed on personal returns would be nearly 46%, compared to a (perhaps) 25 percent corporation rate. TaxVox accurately notes that many business owners would have to rethink their tax structures:
For real people, a decision that was once a no-brainer would suddenly become awfully complex. Do I organize as a corporation and pay a relatively low corporate rate but a rising rate on gains and dividends, or do I organize as a pass-through and pay a much higher individual rate but no second-level tax?
A better answer will be to do base-broadening and rate-cutting for both corporations and individuals. The basic ideas aren't hard -- eliminate deductions and credits, and lower rates. The politics are what's hard.
Link • Tax Reform • Comments (0) • TrackBacks (0) Bookmark: del.icio.us • Digg • reddit
State of the Union -- taxed!
January 27, 2011
The President called for corporate tax rate reduction -- without losing revenue -- and made a nod to individual tax reform, but didn't sound like he will lead the charge for tax simplification. He also got on the bandwagon for repealing the hated 1099 expansion enacted for 2012 in his own health care bill. Howard Gleckman at TaxVox pretty much covers it here:
What he said: We need a competitive corporate tax system with low rates and fewer tax preferences that raises the same amount of money as the current corporate tax system.What he didn’t say: How we’d get there and–except for a passing reference to ending oil subsidies–which business tax breaks he’d repeal. What role business must play in helping reduce the deficit.
What he said: We should simplify the individual tax code.
What he didn’t say: That’d he’d take the lead in such an initiative. Instead he said merely that he would be “prepared to join” a congressional effort to restructure the individual code. This moves the nation about six inches in the direction of a serious rewrite of the tax law.
So -- just words. Dean Zerbe at Forbes says it will be at least two years before the words turn into action.
Robert D. Flach notices that the President's call for tax simplification was almost in the same breath as a call for complication -- a permanent college tuition tax credit.
The Tax Foundation agrees that tax reform is needed, but doesn't think that it's just a matter of beating up oil companies and closing loopholes.
The TaxProf has a roundup and TaxGrrrl has a poll. Kay Bell and Janet Novack ponder what it all means. And Christopher Bergin at Tax.com is just bummed.
Link • Tax Reform • Comments (0) • TrackBacks (0) Bookmark: del.icio.us • Digg • reddit
Why some corporations don't want lower tax rates
January 24, 2011
Whenever tax reform is proposed -- I mean cutting the rates, broadening the base, and simplifying the system -- opponents will always find corporations against tax cuts. Howard Gleckman explains this seeming paradox at TaxVox:
Keep in mind the statutory tax rate in the U.S. is 35 percent, but companies can often lower their bill thanks to dozens of deductions and credits. At one end were the winners: Cisco reported an effective income tax rate of 19.8 percent, Johnson & Johnson 22 percent, and GE just 3.6 percent. At the other end: Wal-Mart paid 33.6 percent, and Disney paid 36.5 percent–more than the statutory rate.This all happens mostly because some companies can shift nearly all of their profits to low-tax countries while others, due to the nature of their business, can’t. But whatever the cause, the effect is that the winners are very likely to fight like Tiger Moms to preserve their tax preferences even as they argue for lower rates. Those who get the short end of the tax stick today will use all of their influence to drive down rates and, if they can get away with it, convince Congress to add a beneficial tax break or two.
It would be silly to expect anything different. No CEO who likes his corner office is going to advocate for changes that will reduce his firm’s after-tax income. Such a step would make for a somewhat awkward shareholder’s meeting.
The same dynamic works in Iowa. Some taxpayers in Iowa actually get subsidies from the state through the corporation tax system; five companies received checks over $500,000 in the last six months of 2009. These large and influential taxpayers aren't going to spend much effort to lower the rates for taxpayers unlucky enough to not have big credits to ease the pain of Iowa's highest-in-the-nation 12% corporation tax rate. Sure, the high rates are bad for the state overall, but the winners in the current system will fight to keep it. Don't expect any of the five big research credit recipients to work very hard to pass the Quick and Dirty Iowa Tax Reform.
Link • Tax Reform • Comments (0) • TrackBacks (0) Bookmark: del.icio.us • Digg • reddit
Ways and Means opens tax reform hearings today
January 20, 2011
The House Ways and Means Committee kicks off tax reform hearings this morning, reports the TaxProf. Taxpayer Advocate Nina Olson, who recently said that tax complexity is the greatest problem for taxpayers, is scheduled to testify.
The Joint Committee on Taxation has prepared a background book for the hearings. It's a gold mine of current and historical tax data, including some wonderful charts. This one shows the components of the federal revenue stream, illustrating the increasing burden of individual and payroll taxes and the declining role of corporation and payroll taxes:
This one shows how the slow post-1986 erosion of the tax base has exploded in the last few years:
The next two should always be read together. First, Top marginal rates since 1970, in current dollars:
Next, the share of GDP collected as federal taxes since 1934:
Whether top marginal rates are 90%, 70%, or 28%, it seems that the government's cut of GDP stays between 17% and 20%. That should give pause to those who think federal spending can be sustained at its current level if we would only go after "the rich." We should also ponder the linkage between the plunge in tax revenue in the past few years and the increase in "tax expenditures."
Link • Tax Reform • Comments (0) • TrackBacks (0) Bookmark: del.icio.us • Digg • reddit
Yet another tax reform panel
March 26, 2009
President Obama has launched another tax reform panel. It seems like only yesterday that President Bush's Presidential Advisory Panel on Federal Tax Reform launched its final report into instant oblivion. Any hopes that the new panel will have more success were dashed by the the conditions imposed on the panel:
“The only constraints on its activities are that there will be no tax increases during 2009 or 2010, and the proposals should not raise taxes on American families making less than $250,000,” said Peter R. Orszag , director of the Office of Management and Budget (OMB).
Unless they can interpret this very creatively, they are pretty much out of luck to start. There is a severe need to reform the vast array of crummy tax breaks, from hybrid car credits to the umpteed educational credits and deductions. You can't clean this stuff up without hurting somebody under $250,000 without making an already top-heavy tax system more unbalanced and dependent on the income of the top 5 percent of earners.
TaxVox points out how other Obama policies are making tax reform more difficult:
The first is that he keeps extending targeted business incentives, such as the research credit. Eliminating these tax breaks makes good sense. But Obama is not only not eliminating old loopholes, he’s even created a few new ones.The second is that he’s on the road to creating a troublesome spread between corporate and individual rates. In his budget, Obama would raise the top individual rate to nearly 40 percent. The president has never said how low he’d cut the corporate rate, but in 2007 House Ways & Means Committee Chairman Charles Rangel (D-N.Y.) proposed taking it down to about 30 percent.
The panel will have some smart people on it, but unless they strike out in a different direction than they've been directed to take, it's hard to imagine much coming of it. They sure won't come up with this:
The TaxProf has a roundup of stories on the panel. Kay Bell has more.
Link • Tax Reform • Comments (0) Bookmark: del.icio.us • Digg • reddit
DON'T HATE ME FOR RENT-SEEKING
February 24, 2006
The Tax Policy Blog says I have only myself to blame for the awfulness of the tax law. A post from yesterday says accountants are "bashing" the results of an IRS studay of the costs of doing tax returns.
It is no surprise that the various industries that only exists because of the complexity of the tax code would come out bashing this study. And it's no surprise that these same groups have also helped lead the fight against fundamental tax reform.
With true tax reform, the need for computer programs and tax accountants to calculate everyone's taxes would be reduced dramatically.
That's the nice thing about my job - I can make a living off of the complexity I despise. Maybe it's akin to the feeling a divorced spouse gets from a monthly check from a loathed "ex." I really am for great simplification of the tax code, if not every bad idea for tax reform, and I think a walk through the archives here shows that. Yet I go to sleep with the serene knowledge I will have work to do the next day becuase there is little chance of our legislators fixing anytime soon, and if they do, the transition rules should provide for a comfortable retirement anyway.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
SHAVIRO CHIMES IN ON TAX REFORM PLAN
November 08, 2005
Tax Blogger and BNA portfolio author Daniel Shaviro has an article in today's Tax Notes on the Tax Reform Panel's report. The Tax Analysts article is accessible here to subscribers only, but Mr. Shaviro has a summary here.
He finds the report wanting in important respects, particularly in its revenue assumptions. Despite these problems, he finds the report useful:
Nonetheless, the Report merits careful attention. Even if it cannot play a role like that of the Treasury I study of 1984, which promptly kick-started a political process that culminated in enactment of the Tax Reform Act of 1986, there is another route to influence worth considering. In 1977, a Treasury tax reform study, Blueprints for Basic Tax Reform, was released despite its plainly being dead on arrival with the change between Administrations. While Blueprints had no immediate political influence, it helped to shape thinking about fundamental tax reform, not just in 1986, but continuing to this day. The Panel will have accomplished much if the Report can exert similar influence over the years, whether through broad concepts that help guide future reform efforts, or by providing a hit list of potentially desirable changes.
Tax Analysts subscribers can link to the article here. I wouldn't be surprised if the TaxProf were to pull it out from behind the subscriber firewall in the coming days. (Update 11-9-05: here it is).
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM PARANOIA
November 04, 2005
The President's Advisory Panel on Tax Reform has nine members. One member is a former Democratic senator. One member is a law professor who used to work for a Democratic senator. One member was appointed IRS commissioner by President Clinton. These folks worked with two academics, an investment banker and two former Republican legislators over ten months. They held 12 public meetings and issued a final report of hundreds of pages.
And all that work was just an exercise to "screw Democrats."
That, at least, is the odd conclusion of a strange article in the online magazine Slate. The article says that the plan turns the screw on Democrats with its proposed limits on home mortgage interest deduction. The plans would reduce the amount of home acquisition debt for which interest is deductible from the current $1 million to the maximum insurable FHA loan amount - currently about $244,000 to $313,000, depending on region. The plan would further "screw" Democrats by repealing the deduction for state and local taxes.
If this were true, it would be an interesting commentary on the state of the Democratic party. The idea that limiting tax breaks for homes costing over $300,000 would "screw" Democrats would have puzzled Franklin Roosevelt, or even Lyndon Johnson. But as the most expensive homes are on the "blue" coasts, then it must be a plot to oppress the blue state "middle class."
More puzzling still, these changes were recommended by the tax reform panel to finance repeal of the alternative minimum tax - a tax the author of the Slate piece has called "Bush's secret tax on Democrats." It was devilishly clever of the committee to "screw" Democrats by helping them.
The Winterspeak blog doesn't buy the Slate argument:
If there is a single group in the US undeserving of sympathy, it has got to be rich homeowners in the East and West coast. These folks have enjoyed 50%-100%+ increases in the value of their homes over the past 5 years and now enjoy properties worth of half a million dollars, in Boston at least, and more in San Francisco and New York. This wealth was no more earned than a scion's bequest, so why it cannot be taxed the bejeesus out of, I don't know.
For a well-informed discussion of the "blue state" effects of the tax reform recommendations, go to Janet Novack's analysis in Forbes.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM PANEL: TODAY'S THE DAY
November 01, 2005
The President's Advisory Panel on Federal Tax Reform delivers its final report at 9:00 a.m. central time today.
Is it a bad sign that the panel is delivering the report on All Saints Day, a traditional day for honoring the dead?
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
HAPPY BIRTHDAY!!
October 21, 2005
If you haven't made your weekend plans, be sure to raise a toast to our current tax code, the Internal Revenue Code of 1986. It celebrates its 19th birthday tomorrow. Remember?
October 22, 1986: President Reagan signs the Tax Reform Act of 1986.
From the looks of the Tax Reform Panel's proposals, I think the '86 code will make it to legal drinking age.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM - PLAN A
October 20, 2005
It looks as though the Presiden'ts tax reform panel will report two different tax-reform plans - a "simplified income tax system" and a "hybrid consumption based tax." We'll look here at "plan A," the simplified income tax.
The main features of this plan include:
- Four rates: 15%, 25%, 30% and 33%.- No alternative minimum tax.
- Health insurance tax-free benefits cappied at $11,500 for families
and $5,000 for single filers.- a 15% credit for home mortgage interest would replace the current deduction. The credit would be limited, with caps on the size of the loan varying among regious; the limits would range from $172,000 to $312,000.
- The state and local tax deduction would disappear.
- The exclusion for gain on home sales would be raised to $600,000, from $500,000 for couples.
- IRAs, HSAs, 401(k)s, 403(b)s, 529 college savings plans and MSAs would all be replaced by three tax-preferred plan types: "Save at Work" accounts, "Save for Retirement" accounts, and "Save for Family" accounts.
- Capital gains would be 75% excluded from income
- Dividends would not be taxed
- The top corporate rate would be reduced to 32%, from the current 35%.
- It eliminates the tax-free status of most fringe benefits (eg., child care, life insurance).
The positive aspects of the plan:
- Elimination of AMT- It addresses the home mortgage deduction.
- It eliminates double taxation of corporate income.
- It pares back the maze of tax-favored savings vehicles.
- It addresses the rat's nest of tax-free fringes.
These positives fail to overcome the plan's shortcomings:
- The base is not broadened enough to significantly reduce rates.- By favoring capital gains, it retains the complex distinction between ordinary income and capital gains, requiring a higher overall rate.
- The cap on home-mortgage interest is complex and confusing.
- By retaining multiple rates between corporations and individuals, it encourages taxpayers to manipulate income between themselves and controlled corporations.
- As far as I can tell, it doesn't address many of the time-wasting tax preferences and loophole closers that make computation of business income so difficult. This would include the execrable Section 199 "production deduction," depreciation issues, Section 263A, various inventory methods, the fire-into-the-crowd deferred compensation rules of Sec. 409A -- and we won't even talk about Subchapter K, the partnership tax laws.
Without a significant rate reduction to reward taxpayers for the loss of their targeted tax breaks, it's hard to see how this plan can advance. For all of their hard work, it seems like the best the commission can hope is that their ideas nudge the tax reform debate along for future Congresses.
In other commentary, Prof. Maule gives the panel an "F": "...and I wish there were an F- grade."
Other Links:
New York Times summary of proposals
Tax Update prior coverage
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM? IT LOOKS LIKE I'LL STILL HAVE A JOB
October 19, 2005
A tax practitioner who opposes the devil of tax complexity is a bit like the preacher who struggles agains the forces of evil: we fight on the side of the angels, but Satan is good for business.
The President's tax reform panel is settling on its final recommendations, and it looks like business will still be ok.
My initial thoughts: the panel has many good and sensible recommendations that, taken together, would go far to improve the tax system. But not far enough.
My biggest disappointment is that the proposals wouldn't significantly lower rates. Lawmakers aren't going to fight to cap the mortgage interest deduction if the payoff is merely elimination of the alternative minimum tax and a 2% reduction in top rates. My hopes for rate reduction may be unrealistic. Still, the last big tax reform lowered the top rate from 50% to 28%. Reducing the top rate from 35% to 33% isn't the same thing, and I don't think that tax reform will work without a significant rate reduction. High rates create an irrestible motiviation to carve out loopholes, leading to higher rates, and more loopholes, etc., and you end up where we are today.
I would like to say more, but I will be at meetings today and unable to post much until late this afternoon. In the meantime you can check out the links below for details on the plan. Tax prof Daniel Shaviro has some thoughts already. No doubt the TaxProf Blog and Dr. Maule will chime in.
The New York Times has a good summary of the proposals. There is also coverage at Tax Analysts free site.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
AICPA PUBLISHES NEW TAX REFORM GUIDE
October 18, 2005
The American Institute of Certified Public Accounts has issued a new guide to the tax reform debate. The report evaluates the major policy options and proposes ten "guiding principles" in evaluating reform proposals.
Links:
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM SHORT-STAFFED?
October 17, 2005
We recently noted that the top Treasury tax policy position has been vacant since 2003. Professor Maule points out that five key Treasury tax policy positions are vacant.
If the President is serious about tax reform, he'd better fill these posts in a hurry. The Tax Reform Panel is set to issue its recommendations November 1. If "personnel is policy," then the current tax reform effort is going nowhere.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM PANEL STIRS UP HORNETS NEST
October 13, 2005
If you ever have wondered why it's so hard to get good tax policy enacted, the frenzy caused by this week's meeting of the President's Advisory Panel on Tax Reform will give you some insight.
The panel discussed two ideas that policy wonks have long considered as worthwhile targets for reform: the home mortgage deduction and the tax preference for employer-provided health coverage. Many economists believe both sets of tax breaks distort their markets and subsidize uneconomical behavior (i.e., excessive investment of family wealth in real estate and "gold-plated" health plans).
The result: outrage on the left and right. From the right:
So in order to make the elimination of the Alternative Minimum Tax "revenue-neutral," the Bush-appointed tax commission proposes the elimination of the housing-mortgage deduction over $340,000. The result of such a phase-out: A colossal real-estate crash in New York, Florida, Illinois, California and, yes, even Texas, with a cascading effect throughout the country. This may be the dumbest major independent-commission proposal in all of human history.
From the left:
So while Bush is looking for ways to **** over the middle class while protecting the tax cuts to the rich.
(sic; asterisks added)
So tax-deductible mortgages on $1 million houses are now a rallying point for the left. Who knew? Left-leaning tax prof Daniel Shaviro apparently didn't get the memo:
Okay, the Republicans have so exploited the tactic of mindlessly repeating talking points ad nauseum that it's understandably tempting for Democrats to play the same game, and trot out good old Paris Hilton every five minutes. But is supporting the AMT, and opposing limits on wasteful upper-end health insurance tax benefits, as well as on tax breaks that promote borrowing and big homes, really a good place to deploy this strategy?
I saw a little bit of the tax reform panel's session rerun on C-span last night (yeah, my life is pretty darn exciting). They seemed to approach the mortgage deduction very gingerly, and they were well aware of the need to transition carefully to a reduced deduction to avoid a real-estate crash. Yet they still stirred up a hornets nest.
The promised land of tax reform is low rates. If rates are low enough, you don't need so many deductions, and taxes matter less. If the biggest tax breaks are off limits, you'll never see the promised land:
(Source: Tax Policy Blog)
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM COMMITTEE: TRIM MORTGAGE, HEALTH DEDUCTIONS; NO NATIONAL SALES TAX
October 12, 2005
From today's edition of Tax Analysts Taxwire:
The President's Advisory Panel on Federal Tax Reform on October 11 ruled out proposing a dramatic replacement system and instead will use the framework of the current income tax base to make major changes, including curbing benefits for housing and healthcare. Scaling back the benefits would simplify the tax code and would help finance repeal of the alternative minimum tax, which would cost $1.2 trillion over 10 years, the panel said.
The "FAIR Tax," a version of a national sales tax, has achieved some support and has spawned a best-selling book. I never thought a sales tax with a rate exceeding 35% made much sense, and the panel apparently agreed.
It will be fascinating to watch the debate over limiting mortgage interest and health cost deductions. While there are many good arguments for limiting these deductions, and many more for killing the AMT, the lobbying against such proposals will be ferocious. I also expect the deduction for state and local taxes to come into play, given that it is the biggest single AMT trigger in high-tax states like Iowa.
UPDATE: Color Prof. Maule unimpressed:
With this sort of work product, the panel should refund to the taxpayers the public funds it has wasted. Charged with reform, this panel seems dedicated to window dressing that masks maintenance of the status quo for their friends and financial backers. America is being short-changed.
Links:
Washington Post (Hat tip: Reader HH).
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
ESTATE TAX REPEAL VOTE DELAYED UNTIL SEPTEMBER
July 28, 2005
The showdown over the repeal of the estate tax has been delayed until September, reports Tax Analysts. Senate Majority Leader Frist will file a cloture motion on the bill, which would enable it to come to a vote.
This will allow Minority Leader Max Baucus and Republican negotiator John Kyl additional time to work out a compromise:
While Kyl has been pushing for a vote on full repeal to speed Democratic deal making, Baucus has repeatedly asked for more patience in achieving a Democratic consensus. Kyl has proposed an estate tax rate tied to the 15 percent capital gains rate and an $8 billion individual exemption. Baucus has yet to present a formal offer.
Related:
National Public Radio story from this morning on estate tax repeal efforts
NPR debate over the estate tax between Gene Sperling and Grover Norquist
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
DeLAY SAYS THERE'S NO PUTTING OFF TAX REFORM
June 22, 2005
One day after a Senate taxwriter said tax reform would be put off to 2007, House Majority Leader Tom DeLay said otherwise:
"We cannot put it off," he said. "Im glad to see the tax reform commission is being serious about what they may recommend."
That makes sense; it's unlikely that tax reform will happen at all in the Bush administration if it's delayed to 2007. Still, this part of the report makes us question how reliable his tax observations are:
DeLay is a longtime supporter of a consumption tax and said he is pleased with how the national sales tax bill from Rep. John Linder R-Ga., has gained momentum.
"I think a lot of people are starting to push aside the flat tax idea because they know it wont work longer than two years."
That's about two years longer than sales tax rates over 35% would work.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TWO YEARS TO TAX REFORM?
June 21, 2005
Senator Jon Kyl, a member of the Senate Finance Committee, says that tax reform might be on the back burner for awhile. Tax Analysts reports:
An aide to Senate Finance Committee member Jon Kyl, R-Ariz., on June 20 confirmed comments the senator made in an interview with Bloomberg News in which Kyl said congressional action on fundamental tax reform is likely to be postponed until 2007.
According to Bloomberg, Kyl said that waiting to act on tax reform would give lawmakers enough time to discuss the findings of the Presidents Advisory Panel on Federal Tax Reform and debate the issue during 2006, an election year. After debate, Congress could then move forward on changes to the tax system in 2007, Kyl said.
Last weekend the White House postponed the due date for the Tax Reform panel's report.
If tax reform waits two years, it might as well wait 20. Tax reform necessarily involves slaughtering a lot of sacred cows, and Congress is loath to do so in the runup to an election.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM REPORT DELAYED TO SEPTEMBER 30
June 16, 2005
The President today signed an executive order delaying the deadline for the tax reform panel's report to September 30. The deadline had been July 31.
Why the delay? It might indicate that there is actual debate over the plan; in that case they might need more time. Yet the press release quotes the co-charis of the committee as saying "We were on track to issue our report by July 31," so they might be delaying for another reason.
Our guess: they figured nobody will be in Washington on July 31 anyway, so they may as well take their time and make their report when people are back from the beach and paying attention.
UPDATE: It looks like the summer vacation theory is right:
Treasury spokesman Taylor Griffin confirmed the delay was not due to fears that the panel would fail to get its work done on time. Rather, he said, the extension was granted to make sure tax reform is not lost in the shuffle amid other priorities such as energy legislation, Social Security reform, highway funding, judicial nominations, and appropriations.
The text of the release is in the extended entry below.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
I DON'T THINK HE LIKES THE 'FAIR' TAX
June 02, 2005
The "Fair Tax," a proposal for a national retail sales tax, has gotten some attention in the tax reform debate. Joseph Thorndike, a columnist for Tax Analysts, isn't quite sold on it:
First, though, we have to sort through an embarrassment of riches: How can we identify the worst quality of a tax that has so many? As numerous critics have pointed out, the Fair Tax would raise too little revenue and prompt too much evasion. Its popularity depends on unreasonable assumptions and misleading descriptions. It would never work as advertised -- a fact that many of its supporters either choose to ignore or secretly celebrate.
But other than that, maybe he likes it.
WHAT IS THE REAL RATE?
Mr. Thorndike points out that the 23% rate touted by Fair Tax supporters is misleading, because it is a "tax inclusive" rate. The 6% tax rate we Polk Countians are accustomed to is "tax exclusive" - it isn't included in the sales tax rate.
Example:Wally buys a new computer for $1,000, and he pays $60 in sales tax. His "tax exclusive" rate is 6%. His "tax inclusive rate" is 5.66% (60/1060 = 5.66%).
If you compute the "Fair Tax" the way we are used to talking about sales tax rates - tax exclusive - it will apply at a 30% rate. That's a real difference.
Perhaps we are biased, being income tax consultants, but the Fair Tax seems to have some huge practical problems. Two come immediately to mind.
WHEN RATES GET TOO HIGH, PEOPLE CHEAT
Sales taxes are only likely to work if rates are low enough to not interfere with commerce. When combined with state and local taxes, the Fair Tax would burden every trip to Git 'n Go with a 36% or higher surcharge. This is high enough to push many transactions into the E-bay economy.
HIGH SALES TAX RATES THREATEN BUSINESSES THAT COLLECT SALES TAXES
Taxpayers going through their first sales tax audit are astounded at how big the assessments can be. They also know that they aren't as simple as many folks believe. While income taxes are only a problem to the extent your business is profitable, sales taxes apply even when you are losing money, and they apply based on gross receipts - a much larger base than taxable income.
Because sales taxes are computed on a big base, a small error in determining what transactions are subject to tax can lead to a stiff assessment over three years, even at a "low" 6% rate. At a 36% rate, even little errors would be ruinous.
FAIR TAX PROSPECTS?
Mr. Thorndike doesn't think the Fair Tax will survive the tax reform process:
And the winner of this year's prize for Worst Idea in a Serious Public Policy Debate: the Fair Tax. In all likelihood, this plan for a national retail sales tax has already exhausted its 15 minutes of fame. Sometime later this summer, President Bush's commission on federal tax reform will probably put it out of its misery.
Link: Thorndike Article (Tax Analysts subscribers only)
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TOP TREASURY TAX POLICY POST FINALLY FILLED
May 27, 2005
The long-vacant top tax policy post at the Treasury finally has an appointee. President Bush announced that he will nominate Phillip D. Morrison as Assistant Secretary for Tax Policy. The post has either been vacant or filled on an "acting" basis since early last year.
With the President's Advisory Commission on Tax Reform set to release its report in the coming weeks, Mr. Morrison will have his hands full. He leaves a post with Delloite and Touche. He was the Treasury's International Tax Counsel from 1989 to 1992.
Mr. Morrison has an article on the prospects for reforming the taxation of international activity available here. An excerpt:
n certain respects, it is still true that the United States has the harshest, and therefore the most anti-competitive, anti-deferral regime of all the OECD countries. Check-the-box has also made Subpart F taxation elective with respect to dividend, interest, rent and royalty payments among CFCs, except in those jurisdictions where per se corporations must be used, thereby creating an unfair situation for those latter companies. With improved transfer pricing clarity and enforcement in the last 15 years, the foreign base company sales and services rules have only capital export neutrality as support and CEN has been somewhat discredited in recent years. Likewise, the lack of sensible loss allowance rules in Subpart F and the lack of a meaningful de minimis rule create a certain level of unfairness and complexity that should be carefully considered. Given these continuing issues, it would be surprising if Subpart F reform were not the subject of at least some renewed debate during 2005-2006 if there is any corporate tax reform debate at all, though many tax directors may be inclined to let sleeping dogs lie.
Link: Tax Analysts Coverage (free)
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
SMALL BALL TAX REFORM?
May 20, 2005
If the President's Advisory Panel on Tax Reform listens to this weeks advice from four former top Treasury policy wonks, they won't be swinging for the fences. They would instead be recommending incremental changes to the existing tax system.
Our guess? A tax base that will resemble the current AMT system - no state and local tax deduction, especially - larger exemptions, and expanded retirement savings options. We may turn out to be wrong, but at least we're consistent.
Link • Tax Reform • Comments (2) Bookmark: del.icio.us • Digg • reddit
TELL US HOW YOU REALLY FEEL, BRUCE
May 19, 2005
Bruce Bartlett does not appear enthused about the prospect of replacing the income tax with a national retail sales tax:
"It's ludicrous," Bartlett said. "It's idiotic. It's moronic. It'll never happen."
Other than that, he appears to have raised no objections at a symposium on tax reform yesterday.
Tax Analysts commentator David Brunori said states should plan to have their concerns ignored in the tax reform debate:
"I cannot imagine the states gaining more influence," Brunori said. "The people who are having the debate do not care about the state fiscal systems."
But do they care about coffee cup integrity?
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
ADVISORY PANEL NEXT TO TACKLE COLOR OF SKY CONTROVERSY
April 25, 2005
Professor Maule calls "No Duh" on the President's Advisory Panel on Federal Tax Reform:
Connie Mack, the former Florida Senator who chairs the tax reform commission, said, "It wasn't until we really had the opportunity to listen to so many different people talk about so many different aspects of the code that it really sunk in about how much and how often the code is being used these days to either create incentives or disincentives for either investment or behavior."Excuse me, Mr. Mack, but weren't you part of many Congresses that amended the Code, adding layer after layer of special interest provisions masquerading as palliatives for the nation as a whole? Didn't you pay attention to the parade of tax legislation prancing past your desk month after month, session after session, Congress after Congress?
We have had similar thoughts.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
FIRST, NAIL DOWN THE OBVIOUS
April 06, 2005
The President's Advisory Panel on Federal Tax Reform has completed its hearings and now is requesting comments on specific changes for the tax system. The panel's executive director, Jerry Kupfer, yesterday told the Tax Executives Institute what witnesses have been telling the panel:
* the corporate income tax distorts many business decisions;* complexity causes such paralysis for individual taxpayers that it may prevent them from taking advantage of some tax breaks;
* the system for taxing the foreign income of U.S. taxpayers is not effective or administrable; and
* the fundamental purpose of the tax system has gotten lost because the code is asked to do too much by encouraging some activities, discouraging other activities, and generally carrying out social and industrial policy.
The Tax Analysts writeup doesn't mention whether the witnesses addressed the Pope's Catholicism or where bears answer nature's call.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
SNOW: IT'S GOING TO BE BIG
April 05, 2005
Treasury Secretary Snow went against conventional wisdom and said that the current tax reform movement will push for "far-reaching" change. He didn't offer specifics.
Tax Analysts reports that Mr. Snow told the Tax Executives Institute:
Knowing this president -- who doesnt like doing little things, he likes doing big things -- if we come up to him with a little tax package, hes probably going to send us back to the drawing board.
He predicts a legislative package in the fall.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM: IMPOSSIBLE AND INEVITABLE?
April 04, 2005
Tax Analysts assembled a number of the veterans of the 1986 tax reform battles last week. They apparently weren't optimistic about things efforts, according to today's Tax Analysts online (subscribers only):
Appearing at a roundtable sponsored by Tax Analysts, the panelists seemed to agree that political sparring would likely sidetrack reform efforts. The environment was much more open to compromise 20 years ago than it is today, according to the panelists."What I doubt is there is the simplicity, the focus, and the ability to be bipartisan that will be essential for any meaningful reform," said Tom Downey, a House Ways and Means Committee Democrat in 1986.
Yet the panelists also said powerful forces would make the need for tax reform urgent:
Weinberger speculated that a confluence of events in the coming years would drive the country towards tax reform:* the impending retirement of the baby boom generation beginning in 2008;
* the skyrocketing number of taxpayers subject to the alternative minimum tax; and
* the scheduled 2008 expiration of the 2001 and 2003 tax cuts.
They say that personnel losses in treasury and the loss of a non-partisan tax policy priesthood that existed 20 years ago made it much harder to draft reform options. That may be so; still I don't recall George Mitchell and Ronald Reagan, who managed to get the 1986 act togater, as being noticably non-partisan.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM PANEL IN SAN FRANCISCO
March 31, 2005
Milton Friedman is the big name on today's witness list for The President's Advisory Panel on Federal Tax Reform. The TaxProf has all of the details and links.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
IS THE BIG MO' IS BEHIND A 'MORE CONSUMPTION-BASED' TAX?
March 22, 2005
An administration economic advisor, says that momentum is building towards a "more consumption based tax system." The speech by Kristin Forbes, reported in today's Tax Analysts, hints at a system based on the current system, but with more generous breaks for savings:
For several years in a row, the administration has proposed creating a short-term savings vehicle and consolidating and strengthening current retirement savings accounts. Forbes said the administration is hoping the tax reform panel breathes new life into those proposals.
Our guess still is that the commission will recommend something like the current alternative minimum tax, with the "Lifetime Savings Account" and "Retirement Savings Accounts" tacked on.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM PANEL HEADS TO SUNNY FLORIDA
March 08, 2005
The witnesses at today's meeting of The President's Advisory Panel on Federal Tax Reform features a hot-shot attorney, two professors, and some businessmen. Yet C-Span again chooses to pass on live broadcasts of this tax firepower, choosing instead live House and Senate broadcasts and some silly speech by the President.
*sulk*
The TaxProf has all of the details.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
WHO SHOULD YOU BELIEVE?
March 04, 2005
If you looked at the headlines, you might think two Alan Greenspans testified before the President's Advisory Panel on Tax Reform yesterday.
From today's print edition of the Des Moines Register (apparently not online):
From today's Tax Analysts online edition:
Witnesses testifying before President Bushs tax reform panel March 3 reinforced the message the group has heard before: Dont bother trying to replace the current system with a whole new one.
Federal Reserve Board Chair Alan Greenspan and former Treasury Secretary James Baker, who both agreed the system was broken and in need of overhaul, advised the group to approach tax reform with an eye toward the current system.
(emphasis added)
Our view: a little of both. Mr. Greenspan may want to nudge the existing system to one that begins to look like a consumption tax. Such a tax might look a lot like the existing alternative minimum tax, but with extra breaks for savings. But you may have already heard that.
BUT YOU DON'T HAVE TO BELIEVE ANYBODY!
Through the miracle of the internet, you can decide for yourself what Mr. Greenspan had to say, courtesy of the TaxProf Blog and his collection of Tax Reform Panel links.
The whole thing has Professor Maule perplexed.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
TAX REFORM PANEL MEETS AGAIN TODAY; NO C-SPAN AGAIN
March 03, 2005
The President's Advisory Panel on Tax Reform convenes again this morning in Washington. The witness list is headed by Federal Reserve Chairman Alan Greenspan, Former Treasury Secretary James Baker III, and IRS Commissioner Mark Everson.
Once again C-Span shows no respect for Tax Policy geeks; their schedule for today makes room for a House Committee meeting on "Care for Wounded Military Personnel" on C-Span 3 - a worthy topic, but one that (one hopes) affects fewer people than tax reform.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
REFORM PANEL NOW TAKES ELECTRONIC COMMENTS (IF YOU USE MS WORD)
February 24, 2005
The President's Advisory Panel on Tax Reform has moved its comment-gathering process into the late 20th Century. The panel now will accept "Transmission by Email as a MS Word attachment to comments@taxreformpanel.gov."
They also say they will accept "Typewritten statements." We hope they don't really enforce the typewriter part.
Link • Tax Reform Bookmark: del.icio.us • Digg • reddit
Tax Updates
Subscribe to Tax Updates
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
Search Tax Updates
Friends and Neighbors
- Becker's Environmental Law Update
- Brett Trout
- Chequer-board
- Douglas Cook’s Arizona Law Blog
- Dustin Wheeler
- Gongol.com
- Insure Blog
- Iowa Banking Law Blog
- Iowa LLC Blog
- IowaBiz.com
- Roger McEowen
- Rush on Business
- Side Notes and Detours
- Social Networking Law Blog
- State 29
- The Bean Walker
- Tusk and Talon
- Will Wilkinson
Economics Nerds
- Cafe Hayek
- EconLog
- Freakonomics Blog
- Greg Mankiw's Blog
- Jr Deputy Accountant
- Marginal Revolution
- Megan McArdle
- Re: The Auditors
- The Knowledge Problem
Tax Nerds
- A Taxing Matter
- About.com
- Andrew Mitchel International tax link
- Bed Buffalos in Your Tax Code
- BenefitsBlog
- California Tax Attorney Blog
- Death and Taxes
- Don't Mess With Taxes
- Farm CPA Today
- Federal Tax Crimes
- Janet Novak
- Leverage/SALT
- Mauled Again
- Missouri Tax Guy
- Our Taxing Times
- Peter Reilly
- Phil Hodgen's Blog
- Smartmoney Tax Blog
- Stacie's More Tax Tips
- Start Making Sense
- Tax.com
- TaxProf Blog
- TaxVox
- Tax Girl
- Tax Guide for Investors
- Tax Guru
- Tax Lawyer's Blog
- Tax Policy Blog
- Taxable Talk
- Taxes in the Back
- Tennessee Tax Guy
- Tick Marks
- Wandering Tax Pro
Gigablogs
Tax Update Data Feeds
