Daily Tax Update - March 13, 2013: Ryan's FY 2014 Budget Calls For Tax Reform - Senate Budget Includes $1 Trillion in New Taxes

RYAN’S FY 2014 BUDGET CALLS FOR TAX REFORM – SENATE BUDGET INCLUDES $1 TRILLION IN NEW TAXES :  Today, House Budget Committee Chairman Paul Ryan released his Fiscal Year 2014 budget proposal.  Ryan said, “This budget offers a plan to expand opportunity. While not sufficient by themselves, policy reforms at the federal level can help foster an environment that promotes economic growth. This budget seeks to equip Americans with the skills to succeed in a 21st-century economy and to grow that economy through long-overdue tax reform. Both reforms work off the same principle: The American people know their needs better than bureaucrats thousands of miles away. And government has a responsibility to support their efforts.”  Ryan added, “By making the tax code more conducive to innovation, investment, and sustained job creation, we can safeguard the American Dream for generations to come.”

  • With respect to tax reform, Ryan’s budget said, “America has an economic problem, in large part due to our outdated, broken tax code. While the vast majority of our foreign competitors have moved aggressively to lower corporate tax rates and update their international-tax systems, the United States imposes the highest combined federal-state corporate tax rate in the industrialized world and relies on an outdated international-tax regime designed more than 50 years ago, when the United States faced virtually no global competition. Furthermore, the top U.S. tax rate on small-business income is 44.6 percent, the top tax rate on individuals’ wages and salaries is 44 percent, and the total tax on investment income (capital gains and dividends) in the United States is 55 percent. American families and small businesses must navigate a maze of different statutory tax rates, hidden rates, confusing deductions, credits, limitations, phase-outs, and the Alternative Minimum Tax. The trifecta of (1) maddening complexity, (2) high tax rates on business income, and (3) the prevalence of double taxation of capital and investment, all combine to suppress innovation, job creation, and economic growth. American families and businesses spend over $160 billion and 6 billion hours every year trying to figure out their taxes. Roughly 90 percent of Americans are forced to pay for commercial tax preparation software or hire a tax professional just to file their taxes. Even after all that, average taxpayers are left to wonder whether someone with the resources to hire a better accountant managed to get a “better deal” out of the tax system. Furthermore, American corporations engage in elaborate tax planning because the current tax code puts them at a competitive disadvantage compared to their foreign competitors. Here too the tax code is unfair, as some companies are able to use arcane and complex provisions of the tax code to reduce their tax burden compared to their competitors. Companies engage in complex transactions purely to reduce their tax burden even when these schemes divert from more productive investments.”
  • Ryan’s budget proposes to:
    • Simplify the tax code to make it fairer to American families and businesses.
    • Reduce the amount of time and resources necessary to comply with tax laws.
    • Substantially lower tax rates for individuals, with a goal of achieving a top individual rate of 25 percent.
    • Consolidate the current seven individual-income-tax brackets into twobrackets with a first bracket of 10 percent.
    • Repeal the Alternative Minimum Tax.
    • Reduce the corporate tax rate to 25 percent.
    • Transition the tax code to a more competitive system of international taxation.
  • Today, Senate Democrats released their budget blueprint which includes nearly $1 trillion in new taxes.  According to reports, the Democratic proposal seeks $1.85 trillion worth of savings over 10 years, through an equal combination of tax revenue increases and spending cuts.  Details of the plan have not been released.

    The House budget can be accessed here.

CAMP RELEASES SMALL BUSINESS TAX REFORM DISCUSSION DRAFT:  Today, House Ways and Means Chairman Dave Camp released a discussion draft “aimed at creating a simpler and fairer tax code for small businesses.” According to the summary, “The discussion draft is designed to provide more uniform tax treatment for pass-through businesses such as sole proprietorships, partnerships and S corporations.” 

The discussion draft includes proposals that would:

  • Provide permanent expensing of investments and property under section 179 of the tax code;
  • Simplify tax and accounting practices by expanding the use of the cash accounting method to businesses with gross receipts of $10 million or less;
  • Establish a unified deduction for start-up and organizational costs; and
  • Reorder and simplify the due dates of tax returns for partners and S corporations.

In addition, the draft outlines and seeks feedback on two separate options for reform of tax rules governing S corporations and partnerships.

  • Option 1 “improves the ability of S corporations to compete, grow and gain access to capital by revising and modernizing current tax rules affecting S corporations and partnerships.”
  • Option 2 “simplifies the tax treatment of non-publicly traded companies by repealing existing tax rules governing partnerships and S corporations and replacing those rules with a new unified pass-through regime.”

An overview of the discussion draft along with a detailed summary can be found at the Ways and Means website

TAX BILL INTRODUCED MARCH 11:  H.R.1040: To amend the Internal Revenue Code of 1986 to provide taxpayers a flat tax alternative to the current income tax system. 

Sponsor: Rep Burgess, Michael C. [TX-26] (introduced 3/11/2013)      Cosponsors (3) 
Latest Major Action: 3/11/2013 Referred to House committee. Status: Referred to the Committee on Ways and Means, and in addition to the Committee on Rules, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.