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Monday, May 28, 2018

11th Blog Anniversary - Still Aiming for Improved Tax Policies - Modern Entrepreneurship


May 14, 2018 was the 11th anniversary of the 21st Century Taxation Blog. This is my 991th post.

I continue to strive to promote improved tax systems that better reflect the ways we live and do business today and follow principles of good tax policy. My goal this coming year is to have regular posts showing examples of how tax systems can be improved to be more effective.

Here is an example, one I also wrote about in 2012 and submitted to the Senate Finance Committee for the written record of their 7/10/12 hearing on Boosting Opportunities and Growth Through Tax Reform: Helping more Young People Achieve the American Dream. Here is a link to my full testimony and a link to the written record of the hearing.

How much did this hearing affect the Tax Cuts and Jobs Act (PL 115-97; 12/22/17)? Not much. While many tax breaks were cut back, some of the most costly ones, such as the exclusion for employer-provided health benefits were untouched. The individual mandate (penalty) to have health insurance was repealed starting 2019 which will cause health insurance costs to increase. The Earned Income Tax Credit was not increased. No first-time homebuyer credit for low to middle-income taxpayers was created. No changes were made to address the growing number of individuals in the "gig economy" who are self-employed.

Here is my suggestion from 2012 to support modern entrepreneurship:


Several trends indicate that workers today are more likely to be self-employed, telecommute or work in their home, and have continual needs for new technologies (such as for hardware and software). Many existing tax rules though, work contrary to support these trends. For example, worker classification rules are unclear causing some employers to label all workers as employees, making it difficult for a self-employed entrepreneur to succeed. Strict home office deduction rules, particularly the exclusive use requirement, make it almost impossible for workers and self-employed individuals to qualify for the deduction. Thus, they are not able to properly calculate true taxable income because some valid business expenses are not deductible.
Additional reforms should be considered to help young people obtain initial funding to start a business. For example, existing tax rules could be modified to provide incentives for established businesses to donate to entrepreneur grant programs where individuals could submit business plans with the hope of being awarded a tax-free start-up grant. The reforms to help fund such grant programs could come from a lowered tax rate on repatriated earnings that go into the fund, or an enhanced charitable contribution deduction for donations to such grant programs.
I'm going to update and further develop that idea - supporting modern entrepreneurship as one more my research projects this year.

What do you think?

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