August 11, 2016 § Leave a comment
The conventions are over and now the fun begins. Not! I’m afraid we are in for a nasty three months of campaigning. Both sides have put forth their proposals for tax reform. I thought it would be interesting to see what a neutral party has to say about tax reform.
The Tax Foundation is an independent tax policy research organization that was founded in 1937. Their mission is to educate taxpayers and show how tax policy impacts taxpayers, the government, and the economy at large. The Tax Foundation’s economists have measured the economic effects of 86 changes to the Internal Revenue Code. In their opinion, here are the top ten pro-growth business and individual tax reforms (ranked in the order of their projected effect on generating economic growth):
Top Ten Pro-Growth Business Tax Reforms
- Reduce the corporate rate to 25% and allow full expensing
- Replace the corporate income tax with a 5% value added tax (VAT)
- Allow full expensing of capital investments
- Lower the top corporate rate to 15%
- Lower the top corporate rate to 20%
- Allow corporations to deduct dividends paid, thus integrating the corporate and individual tax systems
- Lower the top corporate rate to 25%
- Lower the top rate on pass-through business income to 25%
- Cut corporate rate to 28% while eliminating most tax expenditures, except cost recovery
- Eliminate estate and gift taxes
Top Ten Pro-Growth Individual Tax Reforms
- Lower marginal income tax rates across the board by 20%
- Lower marginal income tax rates across the board by 10%
- Lower the top marginal tax rate to 25%
- Lower the top marginal tax rate to 28%
- Consolidate current bracks into three: 10%, 25%, 35%
- Move to a flat rate of 20%
- Eliminate taxes on long-term capital gains and dividends
- Cut top rate to 27% while eliminating all itemized deductions, except charitable and mortgage
- Repeal the Net Investment Income Tax
- Cut all rates by 10% while eliminating all itemized deductions, except charitable and mortgage
Naturally, lawmakers will have to weigh the desired economic gains against the policy’s impact on the federal deficit, absent any cuts in the federal spending.
Not surprisingly, the “experts” don’t expect much to happen in tax legislation this election year. However, depending on the election results we may see major tax reform next year. Or, we may be in for the same old gridlock we have experienced for the last several years.
Dave Hurst, CPA
Partner – McGowen, Hurst, Clark & Smith, P.C.