Another AICPA task force 15 years later (I chaired both, as I've been talking about tax reform for a long time) reviewed the 2001 principles and updated them for a more global, technology-focused perspective.
Fellow AICPA members and professors Ellen Cook and Troy Lewis and I have an article about the 12 principles of good tax policy in the May Journal of Accountancy, which you can obtain for free here. The statement can be found here.
I hope you'll take a look and see how these factors could help shape current tax reform discussions. An example of the application of the principles is illustrated below using a proposal from Congressman Israel who left the Congress last year. I hope you'll consider using the principles if you're analyzing or commenting on tax proposals. Another benefit of using the principles is it can make discussions of tax reform more objective and focused.
What do you think?
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H.R.5381
(114th Congress)- College Preparation Tax Credit Act – This bill
would add new Section 25E, Credit for college preparation expenses, to allow a
credit of up to $500 for qualified college preparation expenses. The credit
would be available via election for up to three years.
Criteria
|
Does the proposal
satisfy the criteria? (explain)
|
+/-
|
Equity and Fairness
|
As
credit, the benefit is the same regardless of income level. Thus, some
vertical equity is achieved that would not exist if the benefit was instead a
deduction that would provide a greater tax savings to higher tax bracket
individuals. The credit is not refundable so provides no benefit to
individuals who do not owe any tax although they may have a greater need for
the assistance with college prep costs.
|
+/-
|
Certainty
|
The definition of college prep expenses
might not always be clear. For example, might gymnastics coaching help if
there is a scholarship prospect?
|
|
Convenience of payment
|
The benefit of the credit won’t be received
until the taxpayer files their tax return. For individuals who need the
subsidy provided by this credit in order to obtain the college prep service,
the timing is not convenient.
|
-
|
Effective Tax Administration
|
The addition of a new rule requires the IRS
to issue guidance and develop procedures to ensure proper compliance, such as
new tax forms and verification.
|
-
|
Information Security
|
One possible compliance measure for
administration of the credit could be that the taxpayer identification number
of the provider of the college prep service must be reported by the taxpayer
claiming the credit. This lead to an increase in identity theft as more
people obtain another taxpayer’s TIN.
|
-
|
Simplicity
|
The credit will require guidance to define
relevant terms, how to make the election and how to ensure the credit is only
claimed for no more than three years.
|
-
|
Neutrality
|
The credit provides a preference for
college prep costs relative to other post-secondary education needs such as
occupational training and related applications. The credit might cause
providers of college prep services to increase their fees.
|
-
|
Economic growth and efficiency
|
The proposal may increase the number of
providers of college prep services. To the extent the credit results in
greater spending in this area, spending in other areas (or savings) are
reduced.
|
+/-
|
Transparency and Visibility
|
Taxpayers are likely to know about the
credit as providers of college prep services will promote the credit.
|
+
|
Minimum tax gap
|
Without some type of verification, some
individuals with high school age children might claim the credit beyond
spending on college prep services.
|
-
|
Accountability to taxpayers
|
Is this legislation needed? What is the
purpose? What data was reviewed? Why is it proposed to be part of the tax law
rather than provided in another manner, such as via a needs-based grant or
scholarship?
|
|
Appropriate government revenues
|
Sufficient data likely exists for a
reliable estimate of the amount of reduced government revenues from the
proposed credit.
|
|
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