Tag Archive for Tax Reform

Could Tax Reform Lead To A More Complex System?

Congressman Camp’s discussion draft of the Tax Reform Act of 2014, released in February 2014 aims to broaden the income tax base and lower tax rates. Broadening the tax base means that some special deductions and credits could be eliminated. It also means that some deductions could be stretched out over longer periods. In the long run, that doesn’t raise revenue as it is just timing. But when you only measure the effects out 10 years, it raises revenue.

One stretched out deduction would be advertising expenses of large companies. Under Camp’s proposal, 50% would be deducted in the year incurred and the balance would be deducted over ten years. That might sound simple, but you need to dig deeper. This proposal will require a definition of advertising. Camp’s is fairly complex. Also, the small Read More

Written by | Posted in Tax Policy

Cash Method For Small Businesses

On July 10, 2014, the House Small Business Committee’s Subcommittee on Economic Growth, Tax and Capital Access, held a hearing – Cash Accounting: A Simpler Method for Small Firms? Congressman Tom Rice opened the hearing noting that he is a former tax attorney and CPA. The purpose of the hearing seems to be how use of the cash method for some businesses (such as small ones) can simplify tax compliance. He did not mention Congressman Camp’s proposal to deny use of the cash method for businesses with over $10 million of gross receipts (unless they are a sole proprietor or farming business) (see Camp’s summary of the Tax Reform Act of 2014, page 87-88).

What did the subcommittee learn from the witnesses?

• The cash method is simpler than accrual. It could be even simpler if reporting was Read More

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Is Tax Reform On Or Off? Odd Activities In The House Last Week

Last week, the House Ways and Means passed H.R. 4718 to make 50% bonus depreciation permanent (it expired after 12/31/13). This is in stark contrast to Congressman Camp’s tax reform proposal of February 2014 that calls for straight-line depreciation (rather than accelerated) and longer lives, as a way to pay for a 25% corporate tax rate. The Joint Committee on Taxation estimates the cost over 10 years is $263 billion (JCX-63-14). H.R. 4718 does not include any revenue offset.

It is unlikely that this bill will be passed by the Senate given the cost and that it is not revenue neutral. Even if revenue were found, I think more politicians would rather use the revenue from converting slowing down depreciation to lower the corporate and individual tax rates.* The lower rates would also benefit all businesses while more favorable Read More

Written by | Posted in Corporate • Individual • Tax Policy

Real Revenue Sources For Tax Reform

To lower the corporate tax rate and perhaps also the individual income tax rate, in a revenue neutral rate means that revenue must be found to pay for the drop in taxes that would occur with a lowered tax rate. Tax preferences – special deductions, exclusions and tax credits would need to be eliminated or cut back. Some of the suggestions though, involve timing items. For example, making depreciable lives longer and methods slower just pushes more of the depreciation deduction to later years. It does not permanently raise revenue. It will show up though as a revenue raiser in a table that only shows the revenue effect for a limited number of years.

Where can permanent tax increases be generated to offset the desired permanent tax decrease generated from permanent lower rates? Read More

Written by | Posted in Corporate

Is It Possible? Comprehensive Tax Reform?

TaxConnections Blog PostOctober 24, 2013, the Democrats of the House Ways and Means Committee sent a letter to Chairman Dave Camp calling for a bipartisan effort to move forward on tax reform. They point out the need and the challenge, noting it will likely require $5 trillion of revenue to repeal the AMT and lower the corporate and individual tax rates to 25%.

I think this is a positive move! I also think that Chairman Camp and Senate Finance Chairman Baucus are committed to moving on comprehensive tax reform. I think we will see proposals from one or both committees in the next few months. As to how specific they will be with respect to how the tax base is broadened in order to lower rates in a revenue neutral manner is the big question.

The letter’s key excerpt:

“Comprehensive tax reform must be the product of a bipartisan process. The Tax Reform Working Groups set the Committee off to a good start, and began the process of Republican and Democratic Members on the Committee digging into the substance of current law. The next step is to discuss tax reform legislation together. Read More

Written by | Posted in Federal • IRS

Senator Submissions For The “Blank Slate” Tax Reform Project – Introduction

TaxConnection Blogger Annette Nellen posts about the "blank slate" tax reformOn June 27, 2013, Senators Hatch and Baucus of the Senate Finance Committee called upon their colleagues to provide suggestions for which special tax rules should remain in or be added to a reformed federal tax system. Comments on this “blank slate” approach were to be submitted by July 26, 2013. To help encourage participation, it was later announced that there would be no linking of any proposal to any senator until 50 years later (The Hill, “Tax writers promise 50 years of secrecy for senators’ suggestions,” 7/24/13). Of course, senators could release their letters to the public on their own. Several senators have done so. But, with the promised secrecy, we likely won’t know how many Read More

Written by | Posted in Federal • Tax Policy • United States

Seven Signs That Congress May Vote On Tax Reform By Next Year

iStock_ 7 XSmallPresident Barack Obama and House Ways and Means Committee Chairman Dave Camp, R-Mich., both seek a revenue-neutral corporate tax rate reduction. Senate Finance Committee Chair Max Baucus, D-Mont., and Ranking Member Orrin Hatch, R-Utah, have proposed a “blank slate” approach, inviting anyone to tell them why any of the existing 200+ tax breaks should remain in a reformed tax system (6/27/13 press release). These leaders, along with many lawmakers, have lists of tax reforms for both individuals and businesses. A big question, though, is whether anything will really happen. This article describes seven signs or indicators that tax reform may indeed occur in 2014 before the end of the 113th Congress.

1. H.R. 1

H.R. 1 is reserved for tax reform legislation per a February 2013 announcement by House Speaker John Boehner, R-Ohio. The House Ways and Means Committee described this action as “signifying the importance tax reform holds for House Republicans” (House Ways and Means Committee news release, “Tax Reform Gets the Green Light” (2/26/13)).

2. More Than Fifty Hearings Held

At the start of the 112th Congress in January 2011, Camp held what he described as the “first in a series of hearings on fundamental tax reform.” He stated that the hearing was the “beginning of a dialogue that the president and the Congress—both Republicans and Democrats—must have with the American people about broad-based tax reform that will allow families to thrive and employers to create jobs.” Since that first hearing, more than 50 hearings have been held by the House Ways and Means and Senate Finance committees (see author’s website with links to tax reform hearings of the 112th and 113th Congresses). Read More

Written by | Posted in United States
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