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by Harry Rabb, C.P.A.
Special to Tropical Breeze
With the 2008 elections just around the
corner, the Congress has initiated dialogue on several key issues.
Tax reform, "cap and trade" for carbon emissions and capital
markets are some of the hottest topics that DC's politicos are
buzzing about. But it is tax reform that is certain to be a
high-stakes issue, and one with consequential implications for
all.
Introducing tax legislation and minor
reform is not a novel endeavor for Congress. In fact, Congress has
passed at least one tax bill each year since 2001 and an average of
one tax bill each year since 1940. However, the last time major tax
reforms took place was when Reagan was President. Working with the
Congress, the Tax Reform Act of 1986 (TRA) made drastic changes to
the tax code.
For example, the top tax rate was lowered
from 50% to 28%, while the bottom rate was raised from 11% to 15%
-- the only time in the history of the U.S. income tax that the top
rate was reduced and the bottom rate increased concomitantly.
While it seems highly unlikely that this
Congress will pass any major tax reform legislation, we have once
again reached a point in U.S. history where there is a bipartisan
push for significant tax reform.
This bipartisan push, coupled with the
fact that the 2001 and 2003 Bush tax cuts are nearing expiration,
has set the stage for a major overhaul of the tax code in 2009 or
2010.
But it is House Ways and Means Committee
Chairman Charlie Rangel's broad tax policy proposal that
substantively set the stage for the examination of possible reforms
by Congress.
Rangel describes his proposal as the
"mother of all tax reforms." It offers a useful glimpse of where
tax policy is likely to go in the next Congress if the chairman is
allowed to work his will with a more sympathetic resident occupying
the White House.
The stated priorities include a permanent
solution for the growing burden of the alternative minimum tax
(AMT), considering ways of closing the "tax gap" (the shortfall in
federal taxes attributable to noncompliance with federal tax laws)
and reviewing the effects of the current tax structure on the
economy in terms of both individual and corporate taxpayers, and
continuing to examine possible reforms, including the repeal of
deferral.
In April 2008, the Senate Finance
Committee kicked off a series of hearings on tax reform with a look
at America's income tax code, and announced plans for future
hearings and roundtable sessions to prepare for a comprehensive
overhaul of the tax code in 2009.
Future hearings are to include: the
taxation of individuals; small business, domestic corporate and
pass-through entities; and multinational corporations, with an
emphasis on international activities. Moreover, Rangel has
indicated that the House Committee on Ways and Means will hold
similar hearings in the near future, but hearing dates have yet to
be announced. The Senate has said that this year's look at our tax
system and reform options should produce a set of principles to
guide the work of the committee-and a new presidential
administration-on tax reform next year.
The Senate Finance Committee wants to be
informed and ready to go in January 2009 and that means they have
to work hard now. They have to first understand on a fairly
comprehensive basis how the system works today. They have to talk
about the natural tensions in tax reform, and what actually happens
to working families, to American businesses and to the country's
global competitiveness depending on how the tax code is
changed.
Enacting a major tax reform bill will be a
challenge, especially if the pay-as-you-go (PAYGO) rule is strictly
enforced on non-emergency legislation. The PAYGO rule compels new
spending or tax changes to not add to the federal deficit.
The next few years should be interesting
for legislators, businesses, and taxpayers, indeed.
This information is provided as a public
service and should not be construed as individual accounting or tax
planning advice. For information on how these general principles
apply to your situation, please consult an accounting or tax
professional.
Harry Rabb is a C.P.A. and partner in
Cormier & Rabb, CPAs, Accounting, Tax and Consulting Services,
28163 U.S. Hwy. 19 N., Ste. 204, Clearwater. Call 727-796-2459.
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