Tax Code Reform Gains Traction in Congress
Washington, D.C. (March 7, 2011)
By Ken Rankin
The accounting profession’s drive for a more predictable and user friendly Federal Tax Code seems to be gaining traction with at least one segment of Congress: the freshly-elected corps of Tea Party activists and their conservative allies in the House and Senate.
Rep. Michele Bachmann, R-Minn., for one, appears to be on the same page with the American Institute of CPAs when it comes to reducing taxpayer uncertainty about the tax code.
The den mother of the Congressional Tea Party Caucus and one of Sarah Palin’s political “Mama Grizzlies,” Bachmann is the chief sponsor of the “End Tax Uncertainty Act of 2011”—one of several bills introduced by congressional conservatives to repeal the problematic Alternative Minimum Tax on individual taxpayers.
During the peak of this year’s tax season, AICPA leaders met with congressional tax writers to hammer home the profession’s concerns about Tax Code uncertainty and the AMT in particular.
Testifying before a House Ways and Means subcommittee, AICPA Tax Executive Committee chair Patricia Thompson blamed Congress for creating uncertainty among many small business taxpayers by last-minute tax changes and expiring programs and provisions.
“Small businesses can be overwhelmed by the barrage of late-year tax law changes and do not have the time or ability to evaluate properly the impact of the changes on their businesses,” she told the subcommittee.
“These ever-changing, oft expiring, short-term changes to the tax laws make it increasingly difficult for a small business owner to do any long-term planning…for new business development or hiring,” Thompson said.
Businesses face particular challenges as a result of the AMT, but individual taxpayers may be even more vulnerable because the majority of them have “never heard of the AMT and are unaware that it may apply to them,” she said. “Due to the increasing AMT complexity, the AMT’s impact on unintended taxpayers, and AMT compliance problems, the AICPA supports repealing the individual AMT altogether.”
Rep. Mike Pence, R-Ind., a member of Bachmann’s Tea Party Caucus, would take a step in that direction with provisions in his pending “Tax Relief Certainty Act of 2011” (H.R.696), which would provide “permanent AMT relief” for individual tax payers.
A companion bill advanced by Sen. Jim DeMint, R-S.C., would do the same (S. 336), but Bachmann’s legislation would go farther. In addition to abolishing AMT outright, her bill (H.R. 86) would make estate tax repeal and other Bush tax cuts permanent.
Other bills in the Congressional hopper would block legislative efforts to overturn other popular tax breaks and lend a sense of permanency to the Tax Code.
Rep. Bill Posey, R-Fla., is pushing a bill to preserve the child tax credit (H.R. 508), Sen. Kay Bailey Hutchison, R-Texas, wants to make marriage penalty relief a permanent fixture in the Tax Code (S.11), and Rep. Tom Cole, R-Okla., is one of several members proposing to make deductions for state and local taxes permanent (H.R. 359).
These measures are mild stuff compared to other pending tax proposals that would take a meat cleaver to the federal tax system and disassemble the Internal Revenue Service.
The House Ways and Means Committee is considering legislation introduced by Rep. Bob Goodlatte, R-Va., to terminate the current Tax Code altogether and require Congress to implement a new tax system by Independence Day 2015 (H.R. 462).
An even more sweeping measure sponsored Sen. Saxby Chambliss, R-Ga., and Rep. Bob Woodall, R-Ga., would shut down the IRS altogether, repeal all federal income, employment and estate taxes, and replace the current system with a 23 percent national sales tax in 2013 (S. 13 and H.R. 25).
In comparison, the “Fair and Simple Tax Act” (H.R. 99), introduced by Rep. David Dreier, R-Calif., seems almost modest. His plan would streamline the personal income tax structure to three brackets (10 percent, 15 percent, and 30 percent), repeal estate and gift taxes, reduce the top corporate tax rate to 25 percent, and index the AMT exemption for inflation.
Still other tax bills pending in the new Congress would offer significant relief to a variety of groups—including tax accountants.
Maryland Tea Party Republican Roscoe Barlett is pressing for legislation to delay the IRS filing deadline from April 15 to the first Monday in November (H.R. 88)—a change that would provide at least a temporary breather for taxpayers and tax preparers alike. Others who may be in for some tax relief from Congress include:
• Telecommuters, who would become eligible for a tax credit for their “teleworking expenses” under the “Telework Tax Incentive Act” (H.R. 710), introduced by Rep. Robert Whitman’s, R-Va.;
• Homeowners, who would get a five year extension of the real property standard deduction—adjusted for inflation—via H.R. 131 sponsored by Rep. Rush Holt, D-N.J.;
• Restaurateurs, who would benefit from a plan by Rep. Shelley Berkley, D-Nev., to boost the deduction for business meals and entertainment expenses from 50 percent to 75 percent (H.R. 468);
• Globetrotting businessmen, who would be able to take business trips with their wives, girlfriends or “other accompanying individuals” and write off their travel expenses under a separate Berkley bill (H.R. 467);
• Silicon Valley workers and other corporate employees, who would receive tax-free treatment for stock compensation paid by their employers, thanks to H.R. 786 from Rep. Dana Rohrabacher, R-Calif.;
• Seniors would have their Social Security income tax liability wiped out under a bill from Rep. Ron Paul, R-Texas, “The Senior Citizens Tax Elimination Act” (H.R. 150), and would get a one-time $500,000 to $1 million capital gains tax exclusion on the sale of their home courtesy of Rep. Bob Filner, D-Calif., and his “Fair Tax for Seniors Act” (H.R. 331);
• Truck farmers would pocket a business tax credit of up to $10,000 under Rep. Joe Baca, D-Calif., and his “Fresh Fruit and Vegetable Grower Tax Incentive Act” (H.R. 317).
• Casino operators would be granted a fast-track five-year depreciation schedule for their computer-based slot machines thanks to Rep. Dean Heller, R-Nev. (H.R. 427).
No group of taxpayers would receive as many tax breaks under legislation introduced this session as teachers.
Full-time elementary and secondary school teachers of math, science, engineering or technology courses could claim refundable tax credits of $1,000 to $1,500 toward undergraduate tuition costs each year under Rep. Rush Holt’s, D-N.J., “National STEM Education Tax Incentive Act for Teachers” (H.R. 135).
A separate bill (H.R. 161) sponsored by Rep. Heath Schuler, D-N.C., allows Head Start teachers the same above the line deduction for supplies that is currently available to elementary and secondary school teachers.
Rep. Judy Biggert, R-Ill., is pushing a Teacher Tax Reduction Act (H.R. 35)—one of several pending measures that would double the dollar limit on the tax deduction for job expenses of elementary and secondary school teachers to $500 and extend this tax break through 2013.
Even parents who teach their own children at home would qualify for a federal tax break under Sen. David Vitter’s, R-La., “Home School Opportunities Make Education Sound Act” (S. 04). The bill would allow all taxpayers—even those who do not itemize deductions—to write off the cost of home schooling their children.
Democrats Weigh in with Tax Legislation
Not all of the tax legislation in the congressional hopper this year has come from Tea Party members and other conservative Republicans. Democrats have tossed in a few bills that reflect a decidedly more progressive tax agenda.
Rep. Barbara Lee, D-Calif., has advanced a new “Income Equity Act” (H.R. 382) that prohibits businesses from tax-deducting executive salaries over $500,000 a year, or greater than 25 times the lowest compensation paid to any employee.
In the Senate, Massachusetts Democrat John Kerry has introduced legislation to sweeten the Earned Income Tax Credit by raising the income thresholds to allow more individuals to qualify. His bill (S.467) would also boost the penalty on tax return preparers who fail to comply with EITC eligibility “due diligence” requirements, raising the fine per violation from the current $100 to $500.
California Democrat Barbara Boxer is pushing a “Sense of the Senate” resolution (S.RES. 25) calling for provisions in all future tax reform legislation offering incentives for companies that “repatriate foreign earnings” in order to create new jobs.
Senate Majority Leader Harry Reid, D-Nev., advanced his own Sense of the Senate measure (S.7) that calls on Congress to simplify the Tax Code, “get rid of extra tax breaks for millionaires,” “eliminate wasteful tax breaks for special interests,” “remove corporate tax loopholes,” “crack down on cheaters, and close the tax gap.”
Although there has been precious little bipartisanship reflected in the tax bills that have surfaced so far this year, there has been at least a speck of legislative Glasnost in the Senate. Massachusetts Republican Scott Brown and Florida Democrat Bill Nelson joined forces to co-sponsor S. 437—a bill requiring the IRS to provide every U.S. taxpayer with a receipt for their income tax payment, including an itemized breakdown of how that payment would be allocated to various government spending programs.