The Internal Revenue Code resembles an encyclopedia, it’s massive set of laws have grown by leaps and bounds over the years. There is a reason it takes CPAs and tax attorneys to decipher it’s complexity for their clients.
The American tax system has become so convoluted and complex that reforming it has been an ongoing issue in Congress and a frequent campaign promise for years. Suggestions for a flat tax, or at least a more simplified filing process that takes a page or two, have been principal goals. Reforming it to help stimulate the economy, help moderate income Americans and simplification are all current goals.
The last time major tax reform took place was when President Ronald Reagan signed the Tax Reform Act into law on October 22, 1986. At that time, the tax code was less than 30,000-pages long. It is more than twice that long today. Since 1986, there have been a number of changes to the profile of businesses, the economy and taxpayers that require change.
Knowing the complexity of the tax system, better than most, president Trump had made tax reform one of his primary campaign promises. The president’s tax reform goals also included corporate taxes, which have caused many U.S. firms to keep large sums of capital in other parts of the world. Repatriating that money would benefit the U.S.
Goals and Hopes for Tax Reform
Some provisions of the tax code overhaul being worked out in the Congress by Republican lawmakers include lowering the corporate tax rate, keeping the deductions for charitable giving and mortgages and doubling the standard deduction. The current proposal would also include a reduction in the number of marginal tax rates from seven to three; 10 percent, 25 percent, and 35 percent.
These changes are meant to help the average taxpayer while other proposals are aimed at corporate taxes. U.S. corporations pay the fourth highest tax rate in the world. In the “developed” world, the U.S. corporate tax rate is the highest. Competing in a global market is made more difficult for this reason.
The hope is that more capital is kept in the U.S. because companies do not have the incentive to relocate to other countries. There is currently no incentive to bring profits earned in other countries back to the U.S. because of current tax rates. The thought is that bringing these funds back to the U.S. would also offset any reduction in tax revenues. The goal of current tax reform would be to bring the corporate rate from 35 percent down to 20 percent or even 15 percent.
Not only would a lower corporate tax help repatriate dollars but it would also be a catalyst for creating more U.S. jobs
For tax reform to become a reality, it requires a meeting of the minds on Capitol Hill. Republicans are primarily in sync on this issue, including both the speaker of the House and the Senate majority chairman. Also, the White House is interested in accomplishing passage of a new law as well. Getting Democrats and their leadership on board would be the clincher. If a budget can be agreed on, then real tax reform is then possible.
Source: Phil Calandara