Tax Regime Uncertainty

• Author: Caroline D. Strobel
• Date: 01 May 2017
• DOI: http://doi.org/10.1002/jcaf.22270
• Published date: 01 May 2017

79

© 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22270

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Tax Regime Uncertainty

Caroline D. Strobel

I had hoped to be writing a

column on proposed tax legis-

lation in the United States, but

this seems to have been pushed

back in favor of other legisla-

tion, particularly the repeal of

the Affordable Care Act. I will

comment on what seems to be

the general consensus around

future tax legislation. On the

corporate side, it appears that

corporate rates will be lowered

to a top rate of 20%, down

from nearly 40%. This will

allow us to be competitive from

a tax standpoint with Euro-

pean countries. Taxes are a

major expense that is incurred

by businesses for the privilege

of doing business. To address

the problem around profits

that have not yet been repa-

triated back into the United

States, there will be a lower

rate for profits brought back

from abroad provided they

are spent to increase corpo-

rate investment on plant and

new employees in the United

States. Another welcome move

apparently will be the imme-

diate write-off of currently

depreciable property. These

moves should provide a power-

ful incentive for investment in

the United States. There is also

strong support for making our

tax system water-edge, which is

what is done in the rest of the

industrialized world. This will

eliminate the reluctance to keep

profits overseas to prevent the

imposition of additional taxes

because of our currently higher

tax rates.

On the individual tax

side, there is a lot less clarity,

primarily because of the com-

plexity surrounding individual

taxes. Special interests will

be at work trying to prevent

the repeal of many provisions

that promote certain activities

in order to entice taxpayers

into taking certain actions in

order to reduce taxes. What is

talked about is a change in the

law so that small businesses,

partnerships, and S corpora-

tions (flow-through entities)

will be taxed at the same rate

as corporations. This is really

important from the standpoint

of small businesses, which are

a major source of new employ-

ment. Another welcome move

would be the elimination of

itemized deductions (mortgage

interest and charitable contri-

butions would be retained) and

many of the personal credits

in favor of a larger standard

deduction so that low-income

taxpayers would have a much

simpler taxreturn to file. Some

suggest that it would fit on a

postcard. I am not holding my

breath over this suggestion.

There would be a graduated

tax rateof three levels: 15, 25,

and 33 percent. There is again

an effort on the part of Repub-

licans to totally eliminate the

estate tax, which affects only

the wealthiest Americans.

Whether the entire tax

package would go through as

one bill or two separate bills is

unclear. There is further uncer-

tainty as I write this column

about the timing, whether it

would occur this year or next.

What is clear is that this along

with the repeal of the Afford-

able Care Act in favor of a

more sensible health care sys-

tem are the two major changes

needed to increase economic

activity in the United States.

TREASURY INSPECTOR

GENERAL FAULTS IRS ON

BACKUP WITHHOLDING

The Treasury Inspector

General has found that the

failure of the IRS to enforce

backup withholding provisions

is causing the federal govern-

ment billions of dollars in lost

revenue. Amounts reported

on information returns by

payers that do not have iden-

tifying numbers (TINs), or