Congressman Camp's Tax Reform Act of 2014 Discussion Draft

 

As promised, Congressman Camp, Chair of the House Ways and Means Committee, released his tax reform plan - the Tax Reform Act of 2014, today.  There is legislative language which helps to see exactly what the proposal is. In addition, there is a summary and an explanation of the rationale. In addition, the Joint Committee on Taxation released 11 documents that explain key parts and provide revenue estimates, a distributional analysis and a macroeconomic analysis.

I'm still digging into it, but a few quick observations:

• They estimate that this reform will grow the economy. For example, the press release states that 1.8 million new private sector jobs will be created and the "average middle-class family of four could have an extra $1,400 per year in its pocket from the combination of lower tax rates in the plan and higher wages due to a stronger economy."
• Individual tax rates would be 10% and 25%. There would be an additional 10% surtax for individuals with income over $450,000 (MFJ). Capital gains and dividends would be taxed at the same rate as other income, but there is a 40% exclusion.
• The top corporate tax rate would drop from 35% to 25%, phased in.
• The individual and corporate AMT would be repealed.
• A variety of tax preferences would be eliminated or cut back for both individuals and corporations.
• The research tax credit would be modified and made permanent. Yet, the deduction for R&D would be cutback in that all such costs (which would specifically include software development costs) would be expensed over five years (rather than expensed in the year incurred).
• Various administrative proposals are offered to improve efficiency and reduce the tax gap.

More later.

There are a lot of documents. I created a 1-page pdf with all of the links - here.

What do you think?

SFC Blank Slate Project 2013 - Senator Rockefeller's Suggestions

Senator Jay Rockefeller

 

Evaluation of Senator Suggestions for the Blank Slate Project

As noted in my 9/6/13 post, I'm going to summarize and analyze proposals senators offered to the Senate Finance Committee, and that the senator made public. Despite falling behind on my project, as tax reform likely heats up in 2014, I'm back at it as I'd like to look at and share what might be a broader array of proposals and issues.  In no particular order, the second set of suggestions I'm commenting on are from Senator Rockefeller (D-WV) (7/26/13 letter). Senator Rockefeller is a member of the Senate Finance Committee.

	Explanation
Key tax policy principles:
Equity and fairness	Require “the wealthiest individuals and businesses to contribute more.”
Simplicity	Not mentioned.
Neutrality	Not mentioned.
Transparency	Not mentioned.
Tax gap minimization	Not mentioned.
Specific tax preferences to be repealed	None mentioned.
Specific tax preferences to be retained	Suggests expanding refundable credits such as the EITC, Child Credit, American Opportunity Tax Credit and the Saver’s Credit.
New tax provisions suggested	None specifically mentioned, but suggests the need to have wealthiest pay more and to have tax reform generate revenue. He refers to his June 2011 proposal that would raise $1 trillion and suggests the SFC consider some of these proposals (without mentioning any specific ones). See my 7/6/11 blog post for details of his 2011 proposal.
Other tax items	None specified, but there are 18 in his June 2011 proposal (see link above).
Non-tax suggestions	None noted other than generating revenue from tax reform.
"Theme"	Reduce income inequality.

 

Commentary: Senator Rockefeller refers to data from the Pew Charitable Trusts and the OECD, that the poorest 20% of individuals are doing worse than prior generations. Per the OECD, “the United States ranks 31 out of 34 developed countries in income inequality.” I think he raises a good point. There is a very wide range of income levels in the U.S. IRS data for 2009 on the top 400 individuals in terms of income indicates that the average AGI for this group was $202 million!  There are 89 in this group without wage income, while only 12 did not have capital gains subject to preferential rates. The average subject to preferential rates was $99 million of capital gains. That is a lot of income taxed at 15% which is lower than the total payroll tax rate (15.3%). While we often hear complaints from some lawmakers and citizens about the roughly 50% of lower income individuals not paying federal income tax, this group mostly have income below $50,000. Why don’t we hear more about the almost $5 million each of the top 400 individuals saved by having a 15% capital gains rate in 2009 rather than 20% (or the $12.87 million each saved if we instead still had the 28% capital gains rate that was in effect from 1987 to 1996)?

Bottom Line: I’m glad Senator Rockefeller raised the equity issue as I think it needs to be discussed. I wish he had said more about the amount of taxes each income quintile group pays as a percentage of their income as that also shows the heavy burden the lowest quintile faces. In discussing equity, we should look not only at federal income taxes paid, but also payroll taxes and other federal taxes (excise, estate, and gift).

What do you think?

 

btw - the first blank slate proposal I analyzed in September 2013 was from Senator Cantwell.

State income tax filing post-Windsor

The U.S. Supreme Court's June 2013 ruling in Windsor held that Section 3 of the Defense of Marriage Act (DOMA) was unconstitutional.  Soon thereafter, the IRS issued Revenue Ruling 2013-17 holding that a couple married in any jurisdiction allowed to confer marriage status would be considered married even if they live in a state that does not view them as married (that is, it would interpret marriage using a state of celebration approach rather than a state of domicile approach). That makes sense in that otherwise, the federal government would continue to treat some marriages as unequal to others.

So, how do same-sex married couples file their state tax return if they live in a state that doesn't treat them as married?  It depends.  For more, I've got a short article - "State income tax filing post-Windsor "in the AICPA Tax Insider, 2/13/14.  It also includes links to several resources.

What do you think?

Guest post - Obamacare Infographic

Thanks to accountingdegree.org for sharing this infographic on some aspects of the Affordable Care Act (aka "Obamacare"). Click to see the entire infographic.

Video of IRS Commissioner Koskinan on the filing season

Want to meet the new IRS Commissioner? He has a YouTube video about the filing season. He even tells people in advance that they might not be able to get to your phone call due to limited resources. That's too bad, but good to be transparent about it all.

He also thanks us all for filing our taxes!  I think that's great!

What do you think?