Tax Gain for Some, Tax Loss for Some: Politicos Dilemma Continues

Posted on April 8, 2022

Tax Gain for Some, Tax Loss for Some: Politicos Dilemma Continues

With the tax deadline nearing, leaders from both the parties can only talk about promises. Tax reforms being discussed with the aim of making the tax code simpler never materialize. According to estimates, taxpayers spend six billion hours filing tax returns. Most taxpayers do not understand the tax laws within the U.S tax code, with its almost four million words. No wonder that most tax lawyers can only master a small part of the tax code and taxpayers are forced to hire tax professionals to have their tax returns prepared.

Republicans and Democrats agree the tax code needs to be simplified to save resources, but their promises are not void of politics. It is, after all, a good idea to talk about tax reform at a time when taxpayers are struggling to prepare their taxes.

Today, corporate society wants to lower the statutory corporate tax rate. They want it decreased from 35 percent to 25 percent, which is difficult to achieve without losing revenue. According to Business Insider, there are only three options for the US to cut the corporate tax rate.

 “• First, revenue neutrality could be abandoned and Congress could simply give corporations a big tax cut. Given the deficit and the opposition of Democrats to a reduction in revenues, this option would seem a nonstarter.

• Second, Congress could do the converse of what it did in 1986 and restrict individual tax expenditures to pay for a cut in corporate taxes. For example, tax rates on dividends and capital gains, which are well below the rates on ordinary income, could be raised. Those with dividends and capital gains are approximately the same people who would benefit from a cut in the corporate tax rate.

• Third, Congress could look beyond tax expenditures to core corporate tax deductions such as for depreciation (the write-off for the wearing down of buildings and equipment), or interest on corporate debt. The latter idea, in particular, has garnered some support.”

There are many other considerations, including the economical, political, and social impact that need to be measured. Tax reform has a long way to go, even if both the parties agree that it’s needed.