Tax reform update: postcard tax filings and sunset legislation
December 18, 2017 - Posted by: admin - In category:
With the expected vote on and passage of the Tax Cuts and Jobs Act of 2017 (a/k/a TCJA and Trump Tax Cuts) later this week, perhaps it is time to review how closely the end-result matches some of the lofty promises made earlier in the process. By the way, I consider myself very much an “independent” politically, so this commentary on the pending legislation should not be interpreted to be politically motivated. There are many aspects of the tax reforms that I like and many I do not like. Let’s starts with one of the loftiest promises made in early November:
Republicans say you can file your taxes with a postcard if new bill passes; H&R Block shares drop
“This is a complete redesign of the code, so we can simplify it so much that 9 out of 10 Americans can file using a postcard-style system,” said GOP Rep. Kevin Brady.
The postcard prop held by Brady read at the top, “Simple, Fair ‘Postcard’ tax filing.”
“It’s going to make life very simple,” said President Trump later in the day. “The only people that aren’t going to like this is H&R Block. They’re not going to be very happy.
Shares of tax preparer H&R Block fell after the news Thursday. (source: https://www.cnbc.com/2017/11/02/republicans-say-you-will-file-your-taxes-with-a-postcard-if-new-bill-passes.html, published Published 12:47 PM ET Thu, 2 Nov 2017 Updated 7:44 PM ET Thu, 2 Nov 2017)
Don’t hold your breath waiting for those post-card filing options. While there has been some modicum of consolidation in the tax brackets and tax deductions area, the reality is that for 9 out of 10 Americans (at least, likely more), the “complexity” of their tax return this year likely will not be much different than what it was last year or the year before. And as far as the earlier comment from POTUS that the likes of H&R Block, other tax preparers, and accountants, in general, would see reduced work this year because of the tax reform legislation, from what I am seeing and hearing from the accountants I know, this is simply not the case. In fact, since the new legislation consists of more than 1,000 pages of “stuff”, it is almost certain that tax professionals are going to be far busier this tax season, as they work through all of the new provisions, respond to un-ending questions from clients regarding the same and determine how to best help clients move forward under this new set of rules. In summary, post-card tax returns may sound good in theory, but they are not any more of a reality now than they were before this new legislation.
Partisan politics require sunset legislation from the Senate. Huh? As poetic as that sounds, it probably requires a little more explanation..:)
Hatch’s revised plan would sunset key middle-class tax cuts starting in 2026 to comply with Senate rules — including income tax rate reductions, the doubling of the standard deduction and an increase in the child tax credit. It also ends a tax break for partnerships, limited liability companies and other so-called pass-through businesses starting on Jan. 1, 2026. However, the corporate rate cut to 20 percent from 35 percent and international tax-law changes would be permanent.
The measures are intended to ensure the Senate tax bill complies with budget rules that prohibit the legislation from adding to the long-term deficit if it’s passed with a simple majority.
Because this bill will pass the Senate by a simple majority (assuming it passes), and given the existence and application of Senate procedural rules, the Senate GOP members are not permitted to pass a bill that will add more than about $1.5 trillion to the national deficit. The Republicans have made a calculated assumption that if they lose control of the Senate in coming years, it will be more difficult for Democrat Senators to push through a repeal of tax cuts for individuals and families than it would be for such Senators to attack “corporate” tax cuts. This is why the current Republican senators have added sunset (i.e., expiring) provisions to the individual tax cuts and stated that corporate tax cuts would be “permanent.”
Two related points: First, remember that saying that corporate tax cuts are permanent does not make it so. In other words, things which are merely statutory and not Constitutional can be changed by the legislature at any time. It merely gives a more significant measure of political publicity to use words that imply permanence than to admit that all of these legislative acts are subject to change. Second, the federal estate tax exclusion is among the sunsetting personal tax cuts. While we can never be certain what the future holds, the reality is that the “death tax” carries with it such a stigma, even though its application to the American population as a whole and the federal treasury is negligible at best–it seems unlikely that Congress will reach a point in the future where it has the votes and the public support to make the federal estate tax (a/k/a/ “death tax”) more applicable to you and me. It just seems to be one of those political hot-potatoes that few want to touch.
Ryan L. Jensen
Pharos Law Group, PLLC
Salt Lake and Logan, Utah
855-239-8015 | pharoslaw.com