Politicians in Washington, D.C. will never be known for trying to make taxes simple to understand. The tax code has expanded to more than 2 million words with individuals spending billions of hours trying to comply with the complex system.
Congressional efforts to cut taxes often become mired in politics with too much talk with very little action. But, sometimes, reform measures miss the mark on what’s important. And, instead of reducing the tax burden on all Americans, politicians often move the burdens around. Congress will pick winners and losers — some see their taxes reduced, while others “pay” for the reductions. In the last Congress, proposed versions of tax reform played that game.
These “reform” measures, especially those proposed in 2014 were littered with provisions that raised taxes. The most onerous earmark was known as “accrual accounting.”
Under tax law, businesses pay taxes on the amount they have received. Yet the Ways and Mans Committee was proposing to tax businesses on the amount of money they are owed. That sleight-of-hand would drive revenues to the government — revenue which, in many cases, should never be owed to begin with.
Because the Congressional Budget Office (CBO) prices legislation over a 10-year budget window, the people who wrote these earlier tax-reform blueprints effectively shifted money that would be owed to the government in the 11th year to make it look like the legislation increases federal tax revenue. Then using that “savings,” they would cut taxes for other people!
In other words, businesses would be shackled with paying taxes on money they haven’t received to pay for a tax reduction for someone else. That makes the shell game operators on Fifth Avenue seem like amateurs.
Americans for Tax Reform protested the inclusion of the provision, noting “it means that individuals – the tens of thousands of owners of pass- through firms – will for the first time have to pay taxes on ‘phantom income,’ or income that they never actually collected that tax year. This switch creates a dangerous precedent for individual taxpayers, not just businesses.”
Luckily, the new Chairman of the House Ways and Means Committee is doing things differently. Recently-proposed tax reform legislation by Rep. Kevin Brady (R-Texas) shelved the accrual provision.
President Trump told reporters this week that, “We are going to be cutting taxes massively both for the middle class and for companies — and that’s massively.” That is great news for the American people and for the economy in general. For the first time in nearly a generation, it appears that this is the first time a politician is walking the walk and not just talking the talk. And that goodness, because the truth is that we have no more time for games.