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“Taxation with Representation” – Where Are We with Tax Reform?

"People who complain about taxes can be divided into two classes: men and women."
-Author Unknown

I gave a test in my last tax reform blog. “What will be the greatest driver of tax reform?” and offered the following possible answers:

  • Bipartisan compromise?
  • Congressional leadership changes?
  • Current events?
  • Revenues?
  • Good tax policy?

Hourglass-tax-reformI was born and raised in DC and joined the DC Statehood Party when I turned 18; the Party’s official mantra of “Taxation with Representation” resonated with me even though the thought of becoming a CPA couldn't have been further from my mind. I wanted to be a pediatrician and I wasn’t about to compromise.

But being raised “inside the Beltway” should have prepared me for partisan politics (Ed, aren’t you forgetting that the Beltway hadn’t been built yet?) So, in hindsight, I should have added something to the tax reform driver list - government shutdown. My last blog focused on the two-week October shutdown and here’s what happened: On Oct. 16, Congress and the White House struck a deal to:

  • Fund government operations with a “continuing resolution” until Jan.15;
  • Extend the debt limit (Treasury’s borrowing authority) until Feb. 7; and
  • Create a “conference committee” to iron out the differences between last year’s House and Senate budget bills with a Dec. 13 deadline.

So where does this leave us and what’s going on with tax reform? Last summer, the House and Senate actually passed separate budget bills but, as you can imagine, they couldn’t have been more different.

The Republican House bill was predicated on revenue-neutral tax reform that lowered corporate rates and paid for it with entitlement reform. The Democratic Senate version contemplated tax reform that included raising $1 trillion in taxes (from wealthier taxpayers) and modest entitlement reform. Congress had months to iron out the differences before the Sept. 30 government fiscal year-end but the challenge proved too difficult.

And now they’re giving it another shot. Twenty-nine conferees - 22 from the Senate and seven from the House - have begun to meet and talk - two months to get something done! (Don’t forget that Congress is actually in session only a matter of days during that period.) Will taxes be part of their discussions? Of course, but what about tax reform?

What happened to the detailed and deliberative process the House Ways and Means and Senate Finance committees embarked on? While both committee chairs are still committed to getting it done, time is not on their side this year. That leaves a very limited opportunity in 2014 - possibly only between Feb. 7 and Aug. 1 when Congress recesses early for the mid-term election cycle.

So much for my earlier blog prediction of tax reform in 2014! And I'm starting to realize that my understanding of “Taxation with Representation” is much different today than it was when I was 18. The DC Statehood Party’s mantra seemed so logical all those years ago, but I’ve come to learn that logic isn’t always a driver of tax policy.

Sorry, but you’ll have to read my next blog for the answer to my quiz! (Here’s a hint: DC is not yet a state.)

Edward S. Karl, CPA, Vice President of Taxation, American Institute of CPAs.

Hourglass image via Shutterstock

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