Why Yes, Tax Reform Can Get More Complicated

Posted on by Caleb Newquist

Juggling all the aspects of income tax reform is quite a task. Here's a mind dump of a few of the elements involved:

  • Credits
  • Deductions
  • Tax-exempt income
  • The treatment of pass-throughs
  • How much marginal rates should be cut
  • If more revenue should be raised
  • How carried interest is treated
  • The capital gains rate
  • Transfer pricing
  • Deferred income

Don't worry, I've forgotten quite a bit. 

All of these are affected by special interests and they span the rules for both individuals and businesses. 

Yet, in ambitious desire to actual make some progress, there is some serious talk going around that would make the whole process even more political, and therefore more complicated: 
[M]omentum is building to tie a rewrite of the Tax Code to hiking the debt cap, which will need to be raised by the fall because the limit will technically be hit this month. Top lawmakers and aides on the House Ways and Means Committee have quietly begun mulling over and crafting mechanisms that would attempt to “commit Washington” to tax reform over the next five months, several sources involved with the planning say. 
In other words, the idea is to manufacture attention — that's the "commit Washington" part — for a complicated and political issue (i.e. tax reform) by tying it to another complicated and even more political issue (i.e. the debt ceiling). 
 
Don't you want to know how this ingenius idea will work? Of course you do:
 
The idea is in its infancy, according to sources involved in planning, but here’s how it would work: Legislation would authorize something like a three-month bump in the debt limit while simultaneously giving the same amount of time for the House to act on its tax-reform plan. When the House passes something, the debt limit would bet increased again, and when the Senate moves its own tax-reform product, Congress would authorize another bump in the debt ceiling. A larger increase in the borrowing limit could come if President Barack Obama signs the legislation, according to a source familiar with the thinking of the Ways and Means Committee. The plan would most likely be accompanied by a road map that lays out certain guidelines for Tax Code rewrite.
All this tying passing to increasing to more passing and more increasing and roadmapping is a loser of an idea, says Jeremy Scott:
Obama has said he won’t negotiate over the debt ceiling. Democrats have consistently scored points on the issue. The business community has even criticized Republican attempts to use the threat of default to wring spending cuts out of the White House. The debt ceiling battle has smelled like a GOP loss for months – and it smacks of desperation whenever lawmakers promise to “win the next round.”  And tying tax reform to the debt ceiling discussions will likely reduce the chances of reform happening in the short term, not increase them.
For anyone out there that thought this was about solving a problem, sorry to disappoint you. It's just about gamesmanship.
 

 

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Jon Huntsman Has a Plan for Tax Reform

Unheard-of GOP Presidential candidate Jon Huntsman isn’t doing so well in the race for his party’s nomination. This is probably due to the fact that he seems like a fairly pragmatic fellow and pragmatism isn’t really something that fits in the GOP agenda. I mean, COME ON, the man believes in evolution and trusts scientists on climate change. Clearly he’s going nowhere with those kinds of policy positions.

So, in what will likely amount to another failed attempt to bring some sense to the GOP narrative, Huntsman will give a speech on tax reform and various other issues in New Hampshire.

Huntsman will lay out his plans for tax and regulatory reform, energy independence and free trade in a New Hampshire speech that’s being billed as perhaps the last best chance for Huntsman, who stands far behind the GOP frontrunners in polls, to establish himself as a serious contender for the Republican presidential nomination. “Meeting our challenges will require serious solutions, but above all, it will require serious leadership – a quality in high demand in our nation’s capital, and among my opponents on the campaign trail,” Huntsman will say, according to excerpts released by his campaign. The centerpiece of the plan is a proposal to reform tax rates. The Huntsman plan would eliminate all loopholes, deductions and tax exemptions in exchange for establishing three individual income brackets, taxed at eight, 14 and 23 percent. The Huntsman plan would also eliminate capital gains and dividend taxes, do away with the Alternative Minimum Tax (AMT) and reduce the corporate tax rate to 25 percent.

Now all he has to do is mention God’s role in all of this and he’ll be the frontrunner.

Huntsman to unveil sweeping tax reform [The Hill]

Warren Buffett Would Like to Clarify His Feelings on The Buffett Rule

“It isn’t [my idea] to have the rich pay more taxes. It’s to have the ultra-rich pay more,” he said on Bloomberg Television Friday. “It isn’t to have the rich pay more taxes. It’s to have the ultra-rich who are paying very low tax rates pay more taxes. There’s all kinds of ultra-rich who pay normal taxes, but there is a small segment–but you can find them very easily–who pay very low taxes, including me. People who make money with money only pay very low taxes at very high levels of income. … What I’m talking about would probably apply to 50,000 people out of 310 million in the country. [BBR/The Hill]