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8 Tax Reform Questions Congress Needs to Raise (and Answer)

Number-8It looks like comprehensive tax reform is gaining some sense of realism. Consider these important actions so far this year:

  • President Obama mentioned it in his January 2013 State of the Union address: "Now is our best chance for bipartisan, comprehensive tax reform that encourages job creation and helps bring down the deficit.  We can get this done."
  • The House Ways and Means Committee formed 11 working groups to address specific areas for reform.
  • On March 21, the Senate Finance Committee began issuing Tax Reform Option Papers -the first one covers simplification for families and businesses.
  • Tax reform is mentioned in both the House and Senate FY2014 Budget Resolutions produced by the budget committees.

The AICPA Tax Reform Task Force has, and will continue to provide to the congressional committees, essential principles for tax reform and specific recommendations that would ease tax compliance and administration.

The complexity of the tax system and the challenges of change make tax reform a difficult, but not impossible task. There are many factors for lawmakers to consider.  As a CPA, I have some questions I'd like to see be part of the discussions that are relevant for comprehensive, effective reform. 

One of my biggest questions is: Will we move to a tax system that better reflects the reality of people’s lives? For example, with people now working beyond retirement, working multiple jobs, and sometimes being self-employed, current retirement plan rules that focus more on the employer’s convenience than the employee’s become cumbersome for workers. Will consideration be given to letting workers have a single retirement account that stays with them whether they change jobs or become self-employed?

  • Other realities of how people live and do business in the 21st century  that need to be addressed include:
    • Businesses of all sizes are likely to be involved in international activity.
    • People are living longer and not saving enough for retirement.
    • Technology changes the work environment making it easier to be self-employed and to work from home. Will the restrictive rules on deducting home office costs be removed (such as the exclusive use requirement)?
    • Incentives for investment in assets should not ignore intangible assets. For example, Section 179 expensing should include intangible assets.

Question-markI have a lot of other questions I’d like to see answered, but I will keep it to seven for now:

  • Should reform only address the income tax?
  • What types of transition rules are appropriate, will they be provided and what is the cost?
  • Will the reform efforts include longstanding issues of worker classification, outdated depreciation lives, and the complexity of over 100 penalties? (The AICPA penalties task force will soon be offering recommendations to address the latter issue.)
  • How will reform affect the distribution of the income tax among income groups? What is the desired distribution?
  • Will tax reform include measures to effectively reduce the $385 billion annual tax gap by improving reporting by cash businesses?
  • Will tax reform also address deficit reduction?
  • Will new taxes, such as a VAT, Financial Transactions Tax or carbon tax be considered for deficit reduction or other purposes?

What more do you think should be asked and answered as part of comprehensive tax reform?

Annette Nellen, CPA, Esq., Tax Professor and Director of the MST Program at San José State University. Annette is an active member of the tax sections of the AICPA, ABA and California State Bar. She is a member of the AICPA Tax Reform Task Force and the immediate past chair of the AICPA’s Individual Income Taxation Technical Resource Panel.

Number 8 image via Shutterstock.

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