The premise for changing the tax code comes from these facts:
- 2,600 pages of IRC
- IRS Forms
- IRS Instructions
- Publications
- Federal court decisions
- -other guidance
Over 70K pages of relevant info – too much. It takes Americans 8.9 billion hours to comply with filing requirements. 9 out of 10 americans use tax preparer or software to prepare their returns.
The PATH Act of 2015 helped a bit. There were 12 program provisions that brought some integrity to the system…but it wasn’t enough.
Corp. side: Globally only 2 countries have higher tax rates than US (when Fed. is combined with States) of 39% – Chad and UAE.
In 2015, Only 6 of the top 20 global companies are headquartered in the US. Down from 17/20 in 1960.
American companies hold $2Trillion in capital overseas – that could be repatriated to invest in US if not for high tax burdens.
27 corporate inversions from 2012 to 2015. 3x the amount of the previous 9 years.
The IRS has 80,000 employees across the country, even still, customer response times are abysmal. GAO says only 38% of callers are able to reach a rep. Wait times per call avg. over 30 minutes.
Some other premises for a new code: Slow GDP growth, Declining labor force, Flat productivity, Weak domestic investment.
The ‘Blueprint’ doesn’t propose a VAT (Value Added Tax)…although Trump and Hillary may both be open to it.
They want to break up the IRS into 3 separate units: 1 focused on serving families and individuals vs. 1 separate unit just focused on businesses and 1 independent unit that acts like a small claims court.
The USA brought in $42 Trillion in tax revenue last year.
The current tax brackets are too complicated, new brackets would be: 0%/12%, 25%, and 33%.
The plan doesn’t get rid of mortgage interest deduction or charitable giving deduction. But does get rid of everything else on the sch. A (itemized deductions).
For C CORPORATIONS, the Federal Income Tax Rate would lower to 20% from 35%.
Individuals would be taxed at ½ their income tax rate on dividends and cap gains.
Repeal Corp. AMT.
Full expensing of asset purchases. i.e. no depreciation applied to tangible and/or intangible property. Land is not included.
Elimination of deducting interest expenses. i.e. Whether you buy assets outright or finance them, no preference in the tax code. They don’t want your economic decisions to be influenced by the tax code.
NOLs carried forward indefinitely
Territories made simpler, no incentive to move operations outside the US.
100% dividend exemption from foreign subsidies
No ‘lock out effect’: US companies can bring $ back to US penalty free
Subpart F rules will be simplified.
The Commissioner will have a 3 year term. President may only re-appoint 1x.
IRS’s new mission = Service first.
Legislation by 2017.