Government

Important Dates In Post-Revolution American Tax History

The Revolutionary War was sparked in part by the British imposing taxes on the American colonists without their permission or consent.

Once the colonists had freed themselves from British rule, it was time to establish a government that could pay the debts it had incurred during the conflict.

Photo by Patrick Fore on Unsplash

Photo by Patrick Fore on Unsplash

1777 – Articles of Confederation

This was the first constitution of the newly formed United State. It favored decentralization of power, which means that Congress was not given the power to tax.

1781  – Report on Public Credit

Robert Morris, Superintendent of finance, wanted the federal government to own the debt it incurred then issue interest-bearing debt certificates while imposing tariffs and internal taxes.

His proposal was shut down by numerous states over the next few years.

1787 – Ratification of the Constitution

The ratification of the Constitution shifted the focus of power to the federal government and away from individual states.

This gave the federal legislature the power to impose tariffs and coin money, along with the flexibility to collect excises and levy taxes directly on individual citizens.

1789 – Tariff of 1789

This tax bill included the original 5% duty on imports, as well as a list of special items that would be taxed at specific amounts.

1790 – Report on Public Credit

This new tax plan worked on two basic principles:

  • Redemption – Congress would redeem at face value all the securities issued by the Confederation government. These old notes would be exchanged for new government securities with interest of about 4%. This plan aimed to intertwine the wealthy Americans who had financed the initial government with the new government.

  • Assumption – The national government would take on outstanding war debts of the states. This would concentrate the nation wealth into the hands of the wealthy merchant class so they would be able to invest in the nation’s economy and other critical innovations.

1791 – Whiskey Excise Tax

This was a tax specifically for spirit distillers and imposed a 7 cents to 18 cent per gallon tax. This was not a popular tax, as spirits were often used as a form of currency out west.

1794 – Uprising Quelled

North Carolina and Western Pennsylvania were in a state of civil unrest after being cited by the federal government for dodging taxes.

The federal government forced the states to send militia to occupy these territories and take down any organized resistance.

President Madison appealed to Congress for a Declaration of War against Britain as the tension between the two countries reached a head.

There was a lot of conflict over fundraising for the war, but Congress eventually settled on doubling the tariff schedule.

 

Important Dates In Colonial American Tax History

In the spirit of summer, we’re creating a series containing some of the important dates in US tax history.

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Credit: Matt Briney on Unsplash

Why is this something we talk about in July? Back on July 4, 1776, Congress adopted the Declaration of Independence, a document that stated the American colonies wouldn’t accept British rule — or taxation.

But that’s just one key date in the history of American taxes. Let’s look at critical years and dates that lead up to the adoption of the Declaration of Independence.

 1733 Molasses Act

This tax was imposed to keep the American colonies buying from the British West Indies and not the lower cost imported options. The imposition of this act was effective the first year then led to corruption.

 1764 Sugar Act

An extension of the Molasses Act, this act increased the tariff per gallon on molasses. It was enforced by prohibiting vessels from shipping directly to the colonies. Ships would have to unload their cargo, pay tariffs, then reload and proceed to the colonies. It also expanded what the Crown could tax.

 1765 Stamp Act

This act said that every official document in the colonies would need a stamp on it. This was done to solely to increase the revenue of the British government, which caused opposition to emerge.

 1766 Declaratory Act

This act repealed the Stamp Act while also declaring that the American colonies are subordinate to the British Government and so the government had the right to tax them. As you can imagine, this didn’t go over well.

 1767 Townshend Acts

This act taxed 72 addition imports including paint, tea, and paper. The revenue raised was to fund the salaries of colonial officers and its administration. The protests from this act eventually caused the Boston Massacre.

 March 5, 1770 – Boston Massacre

What started as a protest of angry American colonists harassing a single British soldier escalated to a bloody conflict where several colonists were shot and killed. This was used to fan the flames of anti-British sentiment.

 1773 Tea Act

This act established that only tea from the East India Trading Company could be sold in the American colonies. The new tea was cheaper, but it hurt independent shop owners, shippers, and smugglers, which is why it caused a backlash.

 December 16, 1773 – Boston Tea Party

Protesters dumped more than 300 chests of tea into the Boston Harbor in protest of the 1773 tea act.

 1774 Coercive Acts

The British pass a series of policies designed to reestablish authority over the American colonies. One of the provisions was Boston Harbor would remain closed until the colonist paid the East India Trading Company for the losses of the tea party.

 July 4, 1776

The Declaration of Independence is adopted after days of the discussions and 12 of 13 colonies agreeing to succeed. The actual signing of the Declaration didn’t occur until August 2.

 

Taxation is a large portion of why the American colonies felt it necessary to break away from England. Taxation continues to be a large part of America’s history, especially in the years immediately following the Revolution.

 

We’ll cover that time period next.

 

Trump Confirms US Withdrawal From Trans Pacific Partnership

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By Tax News

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President-elect Donald Trump has confirmed that, during his first day in office, he will withdraw the United States from the Trans-Pacific Partnership (TPP) trade treaty.

In a short video on YouTube, he said that he would immediately “issue a notification of intent to withdraw from the TPP – a potential disaster for our country. Instead, we will negotiate fair, bilateral trade deals that bring jobs and industry back onto American shores.” The decision was expected, but perhaps not as one of the first executive actions “he would take on day one.”

Covering some 40 percent of the global economy, TPP was signed in February this year by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Approximately 86 percent of tariffs on industrial goods will be eliminated if the agreement enters into force.

With TPP in doubt, China has been pushing for a completion of negotiations for the Regional Comprehensive Economic Partnership (RCEP), as part of its longer term objective to oversee the formation of a wider Free Trade Area of the Asia Pacific.

While it is unlikely to have the same level of market access benefits as TPP, RCEP aims to bring together the existing free trade agreements of China, Japan, South Korea, India, Australia, and New Zealand with the Association of Southeast Asian Nations (ASEAN) into a single enhanced comprehensive agreement. ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Clinton, Trump Restate Tax Policies In Final Debate

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On October 19th, in their third and final debate before the US election, Republican candidate Donald Trump and Democratic candidate Hillary Clinton restated their widely different tax policies, without providing any new detail.

In reply to a question on tax policy, Clinton plugged her policies to provide the funds to grow the economy and “support middle class families,” by having “the wealthy pay their fair share.” She repeated, however, that she would “not raise taxes on anyone making $250,000 or less [and] not add a penny to the [federal] debt.”

By contrast, she said, Trump’s plan “advocates for the largest tax cuts we’ve ever seen. … His whole plan is to give the biggest tax breaks ever to the wealthy and to corporations, adding $20 trillion to our debt. … It truly will be trickle-down economics on steroids. … We tried that. It has not worked.”

Trump countered that her plan “to raise taxes is a disaster. … We’re going to cut taxes massively. We’ll cut business taxes massively. They’re going to start hiring people. We’re going to bring the $2.5 trillion [in deferred US multinational foreign earnings] that’s offshore back into the country. We’re going to start the [economic growth] engine rolling again.”

He also pointed out that he would re-negotiate the US’s “horrible” existing trade agreements, under which “jobs are being sucked out of our economy.” He called the North American Free Trade Agreement “one of the worst deals ever. …Our jobs have fled to Mexico.” He again accused Clinton (which she strenuously denied) of wanting to sign the Trans-Pacific Partnership trade treaty.

Trump dumps 0% tax-rate proposal

By Bankrate

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When Donald J. Trump issued his original tax plan in September of last year, the then-candidate for the Republican presidential nomination promised that some Americans wouldn’t owe any tax at all.

In a speech Monday before the Detroit Economic Club, the now nominee erased that no-tax option.

Original plan had a 0% rate

Trump’s original proposal called for 4 tax brackets, ranging from 0% to 25%.

“If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax,” Trump proclaimed last year. “That removes nearly 75 million households — over 50% — from the income tax rolls.”

His new plan would put some of those folks back on the Internal Revenue Service’s radar.

Fewer brackets, higher tax rates

Trump, apparently in a sign of Republican Party conciliation and economic reality, has revised his tax plan to follow the tax rates and income brackets included in the House Republicans’ tax reform plan.

That proposal, backed by Republican budget guru and current House Speaker Paul Ryan, calls for 3 individual tax rates: 12%, 25% and 33%.

Trump’s 0% tax rate is gone.

Still, the Republican candidate told his packed house at the Detroit event that “many American workers” will find “their tax rate will be zero.” He’s basing this on a proposal for higher standard deduction amounts that was included in a GOP tax reform plan released in June.

“This, in effect, creates a larger 0 percent bracket,” the Republican tax plan says. “As a result, taxpayers who are currently in the 10-percent bracket always will pay lower taxes than under current law.”

Reaching out to parents

Trump has offered another new tax proposal that takes aim at Democratic opponent Hillary Clinton and her lead among women voters.

He wants to allow parents to fully deduct from their taxes the average costs of child care spending.

Clinton has proposed capping child care costs at 10% of a family’s income. The former secretary of state also supports a tax credit of up to $1,200 for adult family members who care for their aging parents.

Deficit question lingers

Trump’s speech to the Motor City gathering dealt with broad tax policy generalizations, as is generally the case for such talks during an election year.

He did promise, though, that “in the coming weeks, we will be offering more detail on all of these policies.”

Those details should tell us whether his new tax plan will be less costly than the nearly $10 trillion estimate that bedeviled his original proposal. Some Trump surrogates have suggested the new figure will be in the $3 trillion deficit range. Bankrate will let you know if that lower deficit amount is correct, as well as what’s in the other new Trump tax-plan specifics as they are announced.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Senate OKs tax break for Olympic medalists

By Bankrate

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With the 2016 Summer Olympics starting this week in Rio de Janeiro, members of Congress are again doing their version of the “USA, USA” chant. They’ve introduced legislation that would make the money won by U.S. Olympic medalists tax-free.

It’s not a new effort. For the last few Olympic games, lawmakers in both the House and Senate have proposed the tax break for winning U.S. competitors. Those proposals have always failed.

This year, however, it looks as if Congress might, to borrow an analogy from the summer event, clear the legislative hurdle.

Olympic athletes’ tax break

Before recessing for the Republican and Democratic presidential nominating conventions in mid-July, the Senate passed the United States Appreciation for Olympians and Paralympians Act.

The bill, S. 2650, would amend the tax code so that Olympic medalists wouldn’t have to report as income the cash prizes that the U.S. Olympic Committee presents them. That’s $25,000 for winning a gold medal, $15,000 for a silver and $10,000 for bronze.

In addition, the value of the medals themselves, which under current law are considered taxable compensation, also would be tax-free. The International Olympic Committee requires the medals to contain a minimum amount of the metal for which they are named.

The same tax exemptions would apply to U.S. Paralympic medalists.

However, any related earnings that Olympians receive, such as corporate sponsorships, would remain taxable income.

Deserved tax relief

Sen. John Thune, R-S.D., who introduced the bill, says it “sends the right message to Team USA, both present and future.”

Olympic athletes deserve the tax relief, says Thune, as repayment for their “years of relentless training and hard work, a significant financial commitment, and an immeasurable amount of sacrifice. It’s no understatement to say that for these high-performing athletes, the chance to compete for an Olympic medal on this world stage is an opportunity second to none.”

Retroactive tax relief

The House, like the Senate, is in recess until Sept. 6, so it won’t get a chance to act on the taxation of Olympic athlete compensation until after the 2016 summer games have concluded.

The measure, however, would apply to medals and prize money that competitors receive for this and future Olympic years.

The bill’s cosponsor, Sen. Chuck Schumer, D-N.Y., headed this week to Lake Placid, New York, the official United States’ Winter Olympics training facility.

The upstate New York town also was in 1980 the site of arguably America’s greatest Olympic victory, the U.S. men’s hockey team’s “Miracle on Ice” defeat of the Soviet Union national team. The Americans’ subsequent win over Finland earned the players that year’s ice hockey gold medal.

Before departing for the iconic Olympic location, Schumer urged House members to pass the bill when Congress returns to Washington, D.C., next month.

The Internal Revenue Service shouldn’t impose a victory tax on athletes who work hard training year-round, said Schumer.

Do you agree with Thune and Schumer that U.S. Olympic athletes deserve to escape tax on their medal winnings?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Senators seek tax relief for student loan burdens

By Bankrate

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College graduates in 2015 owed an average of slightly more than $35,000 on their education loans. Overall, student debt is around $1.3 trillion and growing.

With those kinds of numbers, it’s no surprise that in many cases debt-burdened students look for ways to lessen their loan loads. In rare cases, lenders reduce or completely erase the loan balances.

But what is a surprise to these cash-strapped scholars is the tax bill that comes with that loan forgiveness. Federal tax law says that in most instances, the amount of erased debt is taxable income to the person who used to owe.

A group of Democratic U.S. senators wants to change that tax law.

Student debt dragging down economy

Sens. Bob Menendez of New Jersey and Elizabeth Warren of Massachusetts have introduced S. 3266, the Student Loan Tax Relief Act. Joining as original cosponsors of the bill are their Democratic colleagues Sens. Ron Wyden of Oregon, Debbie Stabenow of Michigan and Cory Booker of New Jersey.

“Students and families are being crushed by student debt, dragging down the economy and holding back an entire generation in its pursuit of the American dream,” said Menendez, who serves on the tax-writing Senate Finance Committee. “If you’re able to get your student loans forgiven and secure a fresh financial start, you shouldn’t then be saddled with an unexpected tax bill.”

Consumer advocate Warren echoed that sentiment, saying the legislation “will give peace of mind to borrowers who have earned the right to have their student loans discharged by ensuring they don’t get stuck with a big tax bill when that happens.”

Streamlining tax-free student loan forgiveness

There are a few cases where student loan debt is forgiven, such as when the borrower suffers total and permanent disability or dies. And only in rare cases the forgiven debt isn’t taxed.

But generally, says Warren, the tax consequences of student loan forgiveness is a mess. “Sometimes the government charges students taxes and other times there are no taxes if the student loans are forgiven,” according to the junior senator from Massachusetts.

S. 3266 would clarify student loan forgiveness tax situations by amending the Internal Revenue Code to exempt student loans discharged through the federal income-based repayment and income-contingent repayment programs.

In addition to the current disability tax exemption, erased loan amounts would no longer be considered taxable income in cases of the debtor’s death, as well as in cases where fraud was committed by a school.

The fraud provision already is part of a separate bill introduced earlier by Stabenow.

Mostly symbolic pending the election

While the Student Loan Tax Relief Act is good news for struggling students and their families looking for ways to reduce their educational debt, don’t start the loan forgiveness process just yet.

Right now, the bill is largely symbolic.

I’m not questioning the sincerity of the 5 Democrats who support it. But the timing of the measure’s introduction just happens to coincide with Democratic National Convention, underway now in Philadelphia.

And the Party’s 2016 platform includes a section decrying “crushing student debt” that discusses support for loan forgiveness and discharge efforts.

Plus, unless the bill is acted upon soon by the Senate, which is unlikely since that chamber is controlled by the Republican Party, it will die at the end of the current congressional session later this year.

But look for the Student Loan Tax Relief Act to be reintroduced in early 2017 when the 115th Congress convenes. Depending on how the November election turns out, it could then become law.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

How your tax dollars are spent

By Bankrate

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Last week, most Americans completed their annual tax filing duties. If you’re like me, when you finish your 1040 you are painfully aware, even when you get a refund, of how much of your money goes to the U.S. Treasury.

So what exactly is Uncle Sam doing with our dollars?

Based on previous years’ government expenditures, more than half of it is heading to Social Security, Medicare and other social safety net programs. Another big chunk goes to defense programs.

The Center on Budget and Policy Priorities, or CBPP, took a look at the $3.7 trillion federal budget for fiscal year 2015 and found that those areas accounted for 75% of spending.

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High cost of health programs

Last year, notes the Washington, D.C.-based nonprofit, 25% of the budget, or $938 billion, paid for 4 federal health insurance programs. The money went toward Medicare, Medicaid, the Children’s Health Insurance Program, or CHIP; and Affordable Care Act, also known as Obamacare, tax subsidies.

Medicare was the costliest program in this group, accounting for nearly two-thirds of the expenditures, or $546 billion, to provide health coverage to 55 million people who are at least age 65 or who have disabilities.

Social Security’s big benefits

Next up in the government ledger was $888 billion, or 24% of the budget, that paid for Social Security.

That money, points out CBPP, goes to a variety of payments, including monthly retirement benefits to millions of retired workers, their spouses and children, as well as survivors’ benefits and payments to disabled workers and their eligible dependents. Another 10%, or $362 billion, supported other safety net programs that provide additional help to individuals and families facing hardship.

Many military expenditures

Defense and security-related international activities accounted for another 16% of fiscal 2015 spending. The bulk of this $602 billion, says the CBPP, reflects the underlying costs of the Defense Department.

While U.S. defense spending comes in 3rd in the U.S. budget, the amount that we allocate for this category far outpaces other nations’ military expenditures.

The Stockholm International Peace Research Institute, or SIPRI, estimates that global military spending in 2015 was around $1.68 trillion.

We’re number 1!

Although SIPRI’s figure is slightly less than the CBPP amount, the United States still topped last year’s military expenditures list at $596 billion, according to the international armaments research institute. And that amount is more than what is spent by the next 7 countries combined.

Following America in shelling out for defense programs were China at $215 billion; Saudi Arabia at $87.2 billion; Russia at $66.4 billion; the United Kingdom at $55.5 billion; India at $51.3 billion; France at $50.9 billion; and Japan at $40.9 billion.

Those 7 nations spent a combined $567.2 billion on their military programs in 2015. That still was almost $29 billion less than the United States alone spent that year in this category.

Are you surprised by the U.S. budget? What bothers you more, the amounts spent or what the money is spent on?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

 

Warren wants IRS to provide direct free tax filing

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By Bankrate

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The Internal Revenue Service offers Free File, a partnership with tax software manufacturers that allows millions of taxpayers each year to prepare and e-file their taxes for, as the name says, free.

Sen. Elizabeth Warren, however, says Free File primarily serves the tax industry, not taxpayers. She wants the IRS to dump TurboTax, H&R Block and other companies that are part of the current system.

The Democratic senator from Massachusetts on April 13 introduced a bill that would require the federal tax agency to develop its own free, online tax preparation and filing service. All taxpayers, without the income limits in place under Free File, would use this IRS direct system instead of going through the current tax industry software intermediaries.

Warren’s Tax Filing Simplification Act of 2016 also would give filers the ability to download all the third-party tax info the IRS already has on them, such as W-2 wage statements and some investment and retirement account statements.

Even better, taxpayers with simple tax situations wouldn’t have to fill out their forms. Instead, in these cases, the IRS would send the eligible taxpayers an already prepared tax return for them to review and, if it’s correct, they would simply submit it unchanged.

Perennial call for IRS direct filing

Warren’s ideas are not new. Similar direct IRS tax filing proposals have been proposed over the years. Even President Barack Obama, when he was candidate Obama in 2007, suggested a similar filing system.

In fact, in this current session of Congress, 2 other lawmakers already beat Warren to the punch. In April 2015, Rep. Bill Foster, D-Ill., introduced the Autofill Act of 2015, and Sen. Jeanne Shaheen, D-N.H., introduced the Simpler Tax Filing Act of 2015.

None of the suggested direct IRS tax-filing changes, however, ever made it very far along the legislative process. Will Warren’s bill fare any better? Maybe.

The outspoken advocate for consumer rights already gets a lot of attention and she has proven tenacious in fighting for her ideas. Plus, in this presidential election year, she’s got the backing of 2 prominent candidates.

Sen. Bernie Sanders, I-Vt., is 1 of 7 original cosponsors of Warren’s bill. Former Secretary of State Hillary Clinton issued a statement praising Warren’s tax simplification proposal.

Free File maze

In support of her bill, Warren’s staff prepared a report denouncing the tax industry’s participation in what the Senator calls a tax maze.

Each software company is allowed to set up its own eligibility criteria, notes the report, creating a jumble of offerings that confuses taxpayers into purchasing unnecessary products.

The report also questions the security of the third-party tax prep providers.

And Warren’s report calls Free File a failure. While the IRS and Free File Alliance say that the program’s options apply to around 70% of taxpayers, the report says that only 3% of eligible taxpayers use Free File.

The companies that are part of the Free File Alliance, the coalition of 13 tax software manufacturers that works with the IRS each year to implement Free File, disagree with Warren’s assessments.

“Not only would [Warren’s] legislation create a tremendous and potentially harmful conflict of interest for the American people by enshrining roles of tax preparer, tax collector, tax auditor and tax enforcer together in one entity, the IRS, but the system’s very creation would also be a huge burden for taxpayers,” said Tim Hugo, executive director of the Free File Alliance. “The proposal would make the essential tax administration work of the IRS impossible, while disadvantaging the taxpayer.”

Expanded IRS filing concerns

Kudos to Warren and others looking for ways to make tax filing less expensive and easier. Suggestions that would help filers with very simple taxes hold a lot of promise.

But there also are arguments against putting even more of our annual filing duties into the IRS’ hands.

  • While pre-filled returns could work for some filers, many would be left out. Self-employed taxpayers, for example, don’t get W-2s or even 1099s in some cases.
  • Pre-filled returns could lead to more tax cheating. If the IRS doesn’t get a 1099, either due to a reporting error or oversight by the payer or because the income wasn’t at the $600-plus triggering level, a taxpayer might be tempted keep the IRS in the dark about that added income. Yes, that’s already a possibility. But taxpayers now worried that the IRS might find out about unreported income tend to go ahead and include the earnings on their 1040s. If, however, they get an IRS-completed return that confirms the agency doesn’t know of the earnings, some filers wouldn’t correct that perception.
  • Some tax breaks could be missed, even for those who don’t itemize. Individuals who claim any of the dozen or so income adjustments, popularly known as above-the-line deductions, would have to make sure those were accounted for in any return filled out by the IRS.
  • While there are security issues with private software companies, the IRS is not immune to hackers. And an IRS-only system might make things worse. At least now, criminals have to search many tax-related systems to get the data they want to put to illegal use.
  • Then there’s the money. The IRS already is hampered in doing its current job because Congress keeps cutting its budget. Warren and her bill’s sponsors must convince their Capitol Hill colleagues to loosen the purse strings enough so that the IRS can create and then implement a tax preparation and filing program that can compete with the private sector.
  • Finally, there’s a general public and specific political resistance to giving the IRS any additional power over their tax returns, even if doing so might make things easier.

Would you like the IRS to start the annual filing process by filling out your 1040? Do you use Free File? Would you use a similar system run entirely by Uncle Sam?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

 

US Pass-Throughs Set Out Tax Reform Wish List

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By Tax-News

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The Parity for Main Street Employers business coalition has issued a new letter that calls on the US Congress to enact tax reform “that is comprehensive, restores tax rate parity for all businesses, and reduces or eliminates the double tax on corporate income by integrating the corporate and individual tax codes.”

The March 17 letter, signed by more than 110 business associations and addressed to the Chairmen and Ranking Members of the House of Representatives Ways and Means Committee and the Senate Finance Committee, noted that tax reform needs to be comprehensive, so as to encompass both C corporations and pass-through entities, including partnerships, sole proprietorships, and S corporations.

Pointing out that, with nearly 70m workers employed at pass-through entities, whose profits are passed directly to their owners and are taxed on their individual tax returns, tax reform should “ensure that we avoid harming these critical employers, [and therefore] needs to be comprehensive and improve the tax code for corporations and pass-through businesses alike.”

The letter also urged that Congress should “restore rate parity by reducing the tax rates paid by pass-through businesses and corporations to similar, low levels. The 2012 fiscal cliff negotiations resulted in pass-through businesses paying, for the first time in a decade, a significantly higher top marginal tax rate than C corporations.”

“Taxing business income at different rates penalizes pass-through businesses and encourages planning to circumvent the higher rates,” it added, “ultimately resulting in wasted resources and lower growth.”

Finally, it recommended that “Congress should eliminate the double tax on corporate income [at both the corporate and the shareholder levels] by integrating the corporate and individual tax codes. … A key goal of tax reform should be to continue to reduce or eliminate the incidence of the double tax and move towards taxing all business income once.”

US Senate Finance Committee Chairman Orrin Hatch (R – Utah) has recently confirmed that he is working on a proposal for corporate tax integration. However, this year’s tax reform efforts in the House of Representatives are being concentrated on international tax reform, with indications that it could include a corporate rate cut (which would increase the disparity with individual tax rates).

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.