Editor: Conrad Teitell, A.B., LL.B., LL.M ., 98.6
December 2016/
January 2017
— 55th year —
2017 Tax Reform.. . . 1
Trump Tax
Proposals. . . . . . . . . 2
House W ays and
M eans Committee
Blueprint on
Tax Reform. . . . . . . . 3
Tax Reform Act of
2014 (Not Enacted)
— Starting Point
for Current
Proposals. . . . . . . . . 6
Blueprint—
Consultation and
Transition. . . . . . . . . 7
Time—Really of the
Essence. . . . . . . . . . . 8
Response to W &M
Blueprint— Suggested
Points. . . . . . . . . . . . 9
Contact W &M
Committee and Your
Representative. . . . 11
Tax Reform—
Legislative
Timetable.. . . . . . . . 11
Democratic SFC
Staff— Comments on
W &M Blueprint. . . . 11
(Continued on Page 2)
Sydney Prerau, Editor 1962-1967
2017 T a x R e f o r m
• Will It Be ALMageddon?
• It’s Up to You
I’m hearing a lot of fear and anxiety that tax
changes heralded for enactment in early 2017
would: (1) make the income tax charitable
deduction available to only 5 percent (instead of
the current 35 percent) of taxpayers; (2) impose
a 2 percent floor before the deduction is allowable; (3) curtail the benefits for some appreciated
property gifts; (4) place a $100,000 ceiling on
itemized deductions ($200,000 for joint filers); (5)
curtail the benefits of donor advised funds; and
(6) impose capital gains taxes on appreciated
property bequests to private foundations.
Although tax reform hurricanes hardly ever happen, all forecasts are
for major tax reform in early 2017. This issue tells about the proposals
being considered and suggested action to be taken by concerned
charities; plus information of interest to tax-history buffs. Those who
ignore history, etc.
Charities and the people they serve face an imminent crisis. And
it is by far the greatest threat to tax-encouraged charitable gifts that I’ve
seen in over half a century. I say this not lightly. Take a look at the top
left of the masthead (under December 2016/January 2017).
For suggested talking points to House Ways and Means Committee
members and your Congressional representative see pages 9 and 10.
You have permission to reproduce and distribute this
issue; I hope widely. Download a printable copy of this
issue at: www.taxwisegiving.com.
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December 2016/January 2017
TRUMP TAX
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W arren Buffett—
The Estate Tax and
Stepped-up
Basis. . . . . . . . . . . . 19
Teitell’s Position—
The Estate Tax. . . . 19
Tax Reform
History— Don’t
Ignore. . . . . . . . . . . 20
Blueprint— A BrandNew IRS. . . . . . . . . . 21
Postcard for
Tax Filing.. . . . . . . . 23
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TAXWISE GIVING
Tax Reform Proposals
President-elect Trump* (from his campaign website)
Individuals—
• Itemized deductions—capped at $100,000 ($200,000 for joint
filers).
• Standard deduction—joint filers increased to $30,000 (from
$12,700); increased to $15,000 for single filers.
• Personal exemptions—eliminated.
• Head-of-household filing status—eliminated.
• Collapse the current seven tax brackets to three brackets.
Brackets and Rates for Married-Joint filers—less than
$75,000: 12 percent; more than $75,000 but less than
$225,000: 25 percent; more than $225,000: 33 percent.
Brackets for single filers—one-half of these amounts.
• Retain the existing capital gains rate structure (maximum
rate of 20 percent). Comment. Current law taxes “unrecaptured
gain” on real estate at 25 percent and capital gain on tangible
personal property (artworks) at 28 percent.
• Carried interest—taxed as ordinary income.
• 3.8 percent Affordable Health Care tax on investment
income—repealed.
• Alternative Minimum tax (AMT)—repealed.
Businesses—
• Business tax—lowered from 35 percent to 15 percent.
Available to all businesses, both small and large, that want to
retain the profits within the business.
• Corporate alternative minimum tax—eliminated.
DEATH (ESTATE) TAX—REPEALED. From the Trump Campaign
website: “but gains held until death and valued over $10 million will be
subject to tax to exempt small businesses and family farms. To
prevent abuse, contributions of appreciated assets into a private
charity established by the decedent or the decedent’s relatives will be
disallowed.”
Comment. Current law gives an heir a stepped-up basis equal to an
asset’s fair market value at the decedent’s death. The heir can keep
the asset, die owning it and pass it on to his heirs who will get a new
stepped-up basis. To forgive capital gains tax for an heir is divine.
*It is said that a President proposes, but the Congress disposes. This time
around, however, both branches seem to grow from the same trunk.
For Conrad Teitell’s publications and lectures, visit our
website: taxwisegiving.com
© Conrad Teitell 2017. Volum e LV, No. 4 and No. 5. Published m onthly by Taxwise Giving, 13 Arcadia Road, Old
Greenwich, CT 06870. Annual subscription $195. Phone: (800) 243-9122 or (203) 637-4553; fax: (203) 637-4572;
em ail: [email protected] .
TAXWISE GIVING
TRUMP TAX
PROPOSALS
(Cont.)
December 2016/January 2017
3
Mr. Trump isn’t proposing a carryover basis rule. Under that rule, an
heir takes over the decedent’s basis (no step-up to the fair market
value at decedent’s death). Capital gains are incurred only when an
heir sells inherited assets.
The Trump proposal would trigger capital gains taxes on the
decedent’s death (on the difference between the decedent’s basis
and the asset’s fair market value at his death).
Would there be a $10 million exemption for all assets or only for small
businesses and family farms? What about appreciated assets
inherited by a surviving spouse?
Appreciated assets, under Mr. Trump’s proposal, bequeathed to
private foundations would be taxable on capital gains. Presumably
“public” charities wouldn’t have to pay capital gains tax on bequests
of appreciated assets.
Despite repeated requests by a major publication for clarification, no
response was given by Mr. Trump’s campaign before the election.
INTERESTING OMISSION—nothing about repealing the gift tax.
HOUSE WAYS
AND MEANS
COMMITTEE
BLUEPRINT ON
TAX REFORM
W&M Committee Chairman Kevin Brady (R-TX) says that the
Committee’s June 24, 2016 Blueprint sets the guidelines for the
tax reform bill now being drafted.
First, here are the “problems” as outlined in the Blueprint. Then, the
Blueprint’s solutions—some specific and many generalized.
Problem #1: The Current Code Imposes Burdensome Paperwork
and Compliance Costs
While the Code runs over 2,600 pages, the Code itself represents
only a small fraction of the entire body of Federal tax law. Taxpayers must navigate laws and guidance that include Treasury
regulations; IRS forms, instructions, publications, and other
guidance; and Federal court decisions. When all these sources are
compiled, the Federal tax laws today fill approximately 70,000
pages.
Problem #2: The Current Code Delivers Special Interest
Subsidies and Crony Capitalism
The tax code is littered with hundreds of preferences and subsidies
that pick winners and losers and create complexity. Instead of freemarket competition that rewards success, our tax code directs
resources to politically favored interests, creating a drag on
economic growth and job creation.
4
December 2016/January 2017
HOUSE WAYS
AND MEANS
COMMITTEE
BLUEPRINT ON
TAX REFORM
(Cont.)
TAXWISE GIVING
Problem #3: The Current Code Penalizes Savings and Investment
The United States has one of the highest levels of taxation on
capital in the world. We tax capital once at the corporate level and
then again at the individual level—with integrated tax rates on
certain investment income exceeding 50 percent.
Problem #4: The Current Code Encourages Businesses to Move
Overseas
Our corporate income tax system imposes the highest rate in the
developed world—39 percent when the 35-percent Federal rate is
combined with the average State corporate tax rate. Globally, only
two of 173 countries have a higher corporate tax rate than the
United States—Chad and the United Arab Emirates. The corporate
tax rate represents the most important tax-related factor in a
company’s decision to invest and locate jobs in the United States
or overseas.
Problem #5: The Current Code Enables a Broken Tax Collector
Over the past three decades, the IRS has become a prime
example of executive branch overreach, blatant misconduct, and
government waste. While the structure of the IRS has expanded
over the years to create a duplicative, inefficient, and complex
bureaucracy with approximately 80,000 employees across the
country, the agency continues to fail hard-working American
taxpayers.
SIMPLIFICATION FOR AMERICAN FAMILIES AND INDIVIDUALS
BLUEPRINT’S highlights for families and individuals
• The Blueprint will simplify, flatten, and lower tax rates. In
addition it will provide for reduced and progressive tax rates on
capital gains, dividends and interest income, to encourage
savings and investment. It will eliminate the alternative minimum
tax so that people no longer will be required to calculate their tax
twice every year.
The Blueprint’s specifics. (Comment. Many of the specifics and
generalizations would directly and indirectly affect taxencouraged charitable gifts):
• Individual Income Tax Rates
Today, there are seven different regular tax brackets for
individuals, with a top individual income tax rate of 39.6 percent.
The Tax Reform Blueprint will make the individual tax system
simpler, flatter, and fairer. The current seven tax brackets will be
consolidated to three brackets and the top individual income tax
rate will be lowered to 33 percent. Going forward, these income
tax brackets will be indexed for inflation.
TAXWISE GIVING
HOUSE WAYS
AND MEANS
COMMITTEE
BLUEPRINT ON
TAX REFORM
(Cont.)
December 2016/January 2017
5
INDIVIDUAL INCOME TAX BRACKETS
Current Law
Blueprint
10%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%/12%*
15%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%/12%*
25%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%
28%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25%
33%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33%
35%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33%
39.6%.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33%
*As described below, the new standard deduction is larger than the current standard deduction and
personal exemptions combined. This, in effect, creates a larger 0 percent bracket. As a result, taxpayers
who are currently in the 10-percent bracket always will pay lower taxes than under current law.
• Itemized deductions
To simplify tax filings further for middle-income families, the Blueprint
reflects the elimination of all itemized deductions except the mortgage
interest deduction and the charitable contribution deduction. These
two provisions help accomplish two important goals that strengthen
civil society: home ownership and charitable giving. Comment. As a
result of an increased standard deduction, only 5 percent (instead of
the current 35 percent) of taxpayers would itemize their deductions.
And there would be a 2 percent of AGI combined floor for the
charitable and mortgage interest deductions.
• Charitable giving
Americans are generous people who want to help their neighbors in
need. For this reason, the Blueprint encourages charitable giving
through a tax incentive. Today, a taxpayer may claim an itemized
deduction for charitable contributions. Because a taxpayer must
itemize to claim a charitable deduction, however, only about 25
percent [actually 35 percent] of taxpayers benefit from the current
charitable contribution deduction. Moreover, historical data show that
the total amount of charitable giving is tied more closely to the health
of the overall economy than to any specific tax policies that might be
in place. The best way to promote charitable giving to the organizations doing so much good in communities across the country is to
improve the overall health of the American economy, which is
precisely what the Blueprint will achieve.
Experts and advocates for charitable organizations have presented
many policies over the years for reforming the deduction for charitable
contributions to make it more effective and efficient. The Committee
on Ways and Means will develop options to ensure the tax code
continues to encourage donations, while simplifying compliance and
record-keeping and making the tax benefit effective and efficient.
Comment. Nice sounding words, but the Ways & Means
Committee’s Blueprint would decimate tax incentives to charitable
gifts.
• Estate and generation-skipping transfer taxes—repealed.
6
December 2016/January 2017
HOUSE WAYS
AND MEANS
COMMITTEE
BLUEPRINT ON
TAX REFORM
(Cont.)
TAXWISE GIVING
• Individual Alternative Minimum Tax—would be repealed. The AMT
requires families and individuals to compute both their regular income
tax and their AMT, and then pay the greater of the two. In effect, the
AMT is a second tax system. The requirement that taxpayers compute
their income for purposes of both the regular income tax and the AMT
is one of the complexities of the current tax code that is most farreaching, with roughly 4 million American families subject to AMT in
2016, and millions more required to do the complex calculations to
determine whether or not they are subject to it. The AMT is particularly
burdensome for small business owners, who often do not know
whether they will be affected by the AMT until they file their tax returns
and therefore must maintain a reserve for potential AMT liability–funds
not being used to create jobs or grow their businesses.
• University Endowments—Tom Reed (R-NY), Ways & Means
Committee member, and Vice Chair of President-elect Donald
Trump’s transition team, proposes to make college tuition more
affordable by placing new management and spending requirements
on college and university endowments.
His proposed Reducing Excessive Debt and Unfair Costs of Education
(REDUCE) Act (not yet introduced, but the U.S. Department of
Acronyms has already done its job) would require schools with
endowments over $1 billion to use at least 25 percent of annual
investment income to reduce cost of attendance for students who
often fail to qualify for grants or federal aid due to their families’
income levels. Schools failing to meet the requirement would face an
immediate 30 percent tax on investment income and a 100 percent
tax if violations aren’t corrected.
TAX REFORM ACT
OF 2014 (NOT
ENACTED)—
STARTING POINT
FOR CURRENT
PROPOSALS
The W&M Committee’s June 24, 2016 Blueprint is short on
details. The bill now being drafted on the charitable deduction and
other changes will likely be based in good part on a bill introduced, but
not enacted, Tax Reform Act of 2014 (H.R. 1).
That bill, introduced in the waning days of the 113th Congress by then
outgoing Ways and Means Committee Chairman Dave Camp (R-MI),
has major charitable gift disincentives. And current W&M Chairman
Kevin Brady (R-TX) has said that Mr. Camp’s bill will be a starting
point for drafting tax reform legislation.
Highlights of Mr. Camp’s bill:
• The invisible elephant in the W&M Committee Room. Only
five percent (instead of the current 35 percent of taxpayers)
would itemize their deductions. This would result from: the
proposed elimination of all currently allowable itemized
deductions except the charitable and mortgage interest
deductions, and an increased standard deduction.
• A two percent adjusted gross income floor for charitable
deductions.
TAXWISE GIVING
TAX REFORM ACT
OF 2014 (NOT
ENACTED)—
STARTING POINT
FOR CURRENT
PROPOSALS
(Cont.)
December 2016/January 2017
7
• No fair market value deduction for long-term appreciated
real estate and non-publicly traded securities. But FMV
deductions would still be allowable for long-term appreciated
publicly traded securities and related-use tangible personal
property.
• Distributions would be required by Donor Advised Funds
and excise taxes imposed on salaries of highly compensated executives of charities.
• Nothing to cheer about—college athletic-event seating
rights. The special current rule that provides a charitable
deduction of 80 percent of the amount paid for the right to
purchase tickets for athletic events would be repealed.
• The AGI limitations on deductible contributions would be
“substantially simplified.” The 50-percent limitation for cash
contributions and the 30-percent limitation for contributions of
capital gain property to public charities and certain private
foundations would be “harmonized” at a single limit of 40
percent. The 30-percent contribution limit for cash contributions
and the 20-percent limitation for contributions of capital gain
property that apply to organizations not covered by the current
50-percent limitation rule (private foundations) would be
“harmonized” at a single limit of 25 percent. Thus, contributions
to this latter group of organizations would be allowed to the
extent they don’t exceed the lesser of (1) 25 percent of AGI or
(2) the excess of 40 percent of AGI for the tax year over the
amount of charitable contributions subject to the 25-percent
limitation. Simplified?
• Gifts of qualified conservation easements would generally
continue to be deductible at fair market value (but
remember the 2 percent AGI floor). And additional special
benefits would be allowed for conservation easements and land
gifts by farmers and ranchers.
Estate and Generation-Skipping Transfer Taxes—repealed.
BLUEPRINT’S INTERESTING OMISSIONS. It is silent on the gift tax
and the issues of stepped-up basis at death, carryover basis at death
and capital gains tax to an heir on a decedent’s death. As noted, Mr.
Trump’s proposal would trigger capital gains tax at a decedent’s death
(see pages 2-3).
BLUEPRINT—
CONSULTATION
AND
TRANSITION
Consultation
As the Committee on Ways and Means drafts this tax reform legislation,
it will have an ongoing dialogue with stakeholders—including families,
workers, and job creators. The Committee welcomes and encourages
robust comments on this Blueprint because it understands that tax
reform will touch the lives of all Americans. These comments will affect
8
December 2016/January 2017
BLUEPRINT—
CONSULTATION
AND
TRANSITION
(Cont.)
TAXWISE GIVING
the Committee’s final legislation and determine the final product. Detailed
information and feedback about the practical effects of the concepts
reflected in the Blueprint will be invaluable in the process of transforming
the Blueprint into legislation that will build a pro-growth, 21st century tax
code. Note. You can send your comments to:
waysandmeans.house.gov/taxreform, click on “Click Here to Give Your
Feedback.”
Transition
The Blueprint lays out the vision for a new tax system that is built for
growth. As with any changes to the tax code, especially changes of the
magnitude of the reforms set forth in this Blueprint, a smooth transition
from the current system to the new system will be necessary. The
Committee on Ways and Means will craft clear rules to serve as an
appropriate bridge from the current tax system to the new system, with
particular attention given to comments received from stakeholders on this
important matter. Comment. The phase-in and phase-out rules are sure
to keep tax planners, seminar providers, and publishers busy for years.
In developing the legislation that will create a 21st century tax code, the
Committee will consider all ideas and is committed to ensuring that the
new tax code will encourage job growth and opportunity for all
Americans.
Because these changes will significantly reduce the complexity and
compliance burdens of the current system, the approach reflected in the
Blueprint will mean that the revised tax filings for most Americans will be
simple enough to fit on a postcard (see page 23 for postcard).
TIME—REALLY
OF THE ESSENCE
Now is the time for charities to make their views known. Ways
and Means Committee Chairman Kevin Brady (R-TX) says his
committee will produce a tax reform bill within 100 days of Mr.
Trump’s inauguration.
Reince Priebus, Mr. Trump’s chief-of-staff in waiting, told a radio-talk
show host on December 14 “. . . we will have . . . a small tax reform
package, and then a bigger tax reform package at the end of April.”
Make your views known now so that April isn’t the cruelest month for
charities and the people they serve. See suggested points to make
on pages 9-10 and page 11 for how to communicate your views.
There is a tide in the affairs of men
Which taken at the flood, leads to fortune,
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current where it serves,
Or lose our ventures.
— Shakespeare’s Julius Caesar
TAXWISE GIVING
RESPONSE
TO W&M
BLUEPRINT—
SUGGESTED
POINTS
December 2016/January 2017
9
Briefly identify your charity and tell how it serves American
citizens.
Points to make:
• We agree with and thank you for your goal to make the tax laws
fairer and simpler. But simplicity by itself shouldn’t be the enemy
of the good that American charities do in serving its citizens
—often providing services that would otherwise have to be
provided by federal, state and local governments.
• The decrease in charitable gifts that would result from the major
curtailing of the income tax incentive for charitable giving and
the elimination of the estate tax that would result in reduced
charitable bequests, would be a double whammy for American
charities. The House of Representatives surely wants to benefit
—and not harm—charities and those they serve.
• We understand that the Ways & Means bill now being drafted
follows the Blueprint and is guided by then W&M chairman Dave
Camp’s Tax Reform Act of 2014. (That bill was introduced but
not voted on.) The two together would severely limit income tax
incentives for charitable contributions.
• Only 5 percent of taxpayers—compared to the current 35
percent—would be itemizers.
• For the remaining 5 percent, a 2 percent floor would apply to the
charitable deduction.
• The current fair market value deduction wouldn’t be allowable
for gifts of appreciated real estate and gifts of non-publicly
traded stock—such as stock in small businesses.
• Request for opportunity to comment on the bill now being
drafted. The Blueprint invites public comments. Our following
comments address the specific and many general concepts of
the Blueprint and Mr. Camp’s bill. However, we ask that the
public be given an opportunity to comment on the specific bill,
now being drafted, when it is made final. We are suggesting a
short comment period. Changes of the magnitude being
considered shouldn’t be voted on by the House before the public
has time to review and comment on the bill.
Based on the information that we now have, here are our
comments:
• If the percentage of donors who itemize is reduced to 5 percent
(or a percentage significantly lower than the current 35 percent)
charitable deductions should be deductible from gross instead
of adjusted gross income (above the line).
10
December 2016/January 2017
RESPONSE
TO W&M
BLUEPRINT—
SUGGESTED
POINTS
(Cont.)
TAXWISE GIVING
• The 2 percent floor of the Tax Reform Act of 2014—and with
only 5 percent of taxpayers itemizing—would decimate tax
incentives to charitable giving.
• Retain the current law that authorizes charitable remainder
unitrusts, charitable remainder annuity trusts, charitable gift
annuities, charitable lead annuity trusts, charitable lead unitrusts
and charitable remainder interests in personal residences and
farms.
• Retain the current law allowing individuals age 70½ or older to
make direct (outright) transfers—not deductible as charitable
contributions—from an IRA of up to $100,000 per year without
having to report the IRA distributions as taxable income on their
federal income tax returns. This law encourages all taxpayers
(whether they itemize or not) to make charitable gifts.
• Expand the direct charitable IRA transfer (above) to allow IRA
rollovers for gifts that benefit charities and provide taxable
retirement income—charitable life-income plans—for the
donors. At the donor’s death, the assets in the plan are owned
outright by the qualified charity. Charitable deductions aren’t
allowable for amounts transferred to the life-income plans
(charitable remainder trusts and charitable gift annuities). The
Legacy IRA Act (H.R. 5171) would accomplish the foregoing. It
was introduced on May 6, 2016 with Ways and Means
Committee cosponsors: Peter Roskam (R-IL); Earl Blumenauer
(D-OR); Patrick Tiberi (R-OH); Erik Paulsen (R-MN); Mike Kelly
(R-PA); Kristi Noem (R-SD); Adrian Smith (R-NE); and Devin
Nunes (R-CA). Rep. Kevin Cramer (R-ND), a long-time advocate
of the legislation, is also a cosponsor.
• The Blueprint calls for repeal of the estate tax. Although we take
no position on the issue, repeal of the estate tax will result in
decreased major bequests by wealthy taxpayers.
• The Blueprint states that its changes in the tax laws will spur the
economy and this will redound to the benefit of charitable
organizations and the Americans they serve. We, of course,
hope that the economy will expand. However, all recognize that
this won’t happen overnight. In the meantime, charities will still
be called upon to feed and shelter the homeless, fight drug
addiction, educate youngsters and provide all their other
services for the public good.
Conclusion. In the Blueprint’s own words, the charitable deduction
helps accomplish the goal of strengthening civil society. However,
many of the Blueprint’s provisions that directly and indirectly affect
American taxpayers would thwart that goal.
TAXWISE GIVING
CONTACT
W&M COMMITTEE
AND YOUR
REPRESENTATIVE
December 2016/January 2017
11
How to communicate your views—
To comment to the House Ways & Means Committee:
Go to: waysandmeans.house.gov/taxreform, click on “Click Here to Give
Your Feedback.”
Also, give your views to the individual members of the tax writing
committees. House Ways and Means Committee members are listed
on page 23; Senate Finance Committee members are listed on page
23.
Also send your comments to the House member in your District who
isn’t on the W&M Committee. Personal visits by groups of charities in
the Congressperson’s home office are the best.
Good idea to give your senators (on and not on the Senate Finance
Committee) a heads-up on your concerns about the House Blueprint
proposals.
TAX REFORM—
LEGISLATIVE
TIMETABLE
Possible Fast-Track 2017 Timetable
•
•
•
•
•
•
•
M arch. House W ays & Means Com m ittee m arks up a bill based on the June
24, 2016 Blueprint.
April. House passes W ays & Means Com m ittee’s bill.
M ay. Senate Finance Com m ittee considers House bill and reports out its bill.
June. Senate passes Senate Finance Com m ittee bill.
July. House-Senate Conference Com m ittee irons out differences and drafts
com prom ise bill.
August. House and Senate pass conference bill.
August-September. President signs bill and we’ll have m ega tax changes.
Passage of a tax reform bill reported out of the House Ways & Means
Committee is a slam dunk* in the House.
Will the House bill be an alley-oop** dunk when it is “passed” to the
Senate? The Senate generally has its own ideas. Although the Republicans
have a majority, can the House bill or a bill reported out of the Senate
Finance Committee survive a Democratic filibuster and require 60 votes for
passage?
House and Senate leaders say that the tax reform bill will be on a fast
track and be filibuster-proof, requiring only 51 Senate votes—passing
under a procedure known as reconciliation.
DEMOCRATIC
SFC STAFF—
COMMENTS ON
W&M BLUEPRINT
The Democratic Senate Finance Committee staff summarized the
House Blueprint in a 12/8/16 memorandum to the tax legislative aides
of Democratic SFC members:
The House Blueprint is (1) highly regressive and fiscally irresponsible; (2)
expands many tax breaks for the wealthy and cuts back many deductions
and credits that are important to the poor and middle class; and (3) the
*For non-sports fans: In basketball, this is when a player jumps in the air and puts the ball directly
through the basket when the ball is above the rim’s horizontal plane. Outside the basketball arena, it is
the term used to convey that the outcome is a “sure thing.”
**An alley-oop dunk is performed when a pass is caught in the air and then dunked.
12
December 2016/January 2017
DEMOCRATIC
SFC STAFF—
COMMENTS ON
W&M BLUEPRINT
(Cont.)
TAXWISE GIVING
key feature on the business side of the plan—a destination-based cash flow
corporate income tax with “border adjustments”—is confusing, untested,
leads to bizarre results, and is possibly illegal under WTO rules.
The Democratic SFC staff’s comments on Budget Reconciliation:
Budget reconciliation is inherently partisan and will not allow for careful
consideration of the plan. Our concerns about the House Blueprint are
amplified by the process under which it is likely to be considered. The
budget reconciliation process was designed to make it easier for Congress
to meet its budget goals, fast-tracking legislation through the Senate with
limited debate and no filibuster. To ensure that the process is less subject
to abuse, the Byrd rule allows Senators to raise a point of order striking,
among other things, (1) provisions that have minimal budget effect and (2)
provisions where the budget impact is merely incidental to the policy goal of
the provision. The Blueprint legislation can be expected to have many such
provisions, including tax administration and simplification provisions, certain
excise taxes designed to change behavior, and provisions that streamline
popular deductions and credits.
Budget reconciliation will not create lasting, sustainable tax reform.
Budget reconciliation is designed for budget cuts and deficit reduction, not
deficit expansion. The Byrd rule prohibits any reconciliation title from
increasing the budget deficit in any year outside the budget window. The
Blueprint would clearly increase the deficit, even with dynamic scoring. As
a result, Republicans may choose to "sunset" the entire bill in 2027, with
current law springing back to life in the first budget "out-year" (2028). The
Budget reconciliation process is simply a poor fit for comprehensive tax
reform; in the past it has led to such bizarre results as the complete repeal
of the estate tax for one year (2010) followed by the estate tax springing
back to life in the following year—better known in the tax policy community
as the "Throw Momma From The Train" act. The budget reconciliation
process leads to legislation that is temporary, non-comprehensive, and
illogical. We would prefer that tax reform be comprehensive, lasting, and
smart.
ADDITIONAL
BLUEPRINT
PROVISIONS—
AFFECTING
INDIVIDUALS
Earned Income Tax Credit
Tax Benefits for Higher Education—simplified
• Under current law, there are over a dozen different overlapping tax
benefits relating to education. These tax benefits are so complicated
that many taxpayers cannot determine the tax benefits for which they
are eligible. In fact, the IRS publication on tax benefits for education
is almost 100 pages long. Streamlining education tax benefits will
enable taxpayers to understand better the tax benefits for which they
qualify.
• The Blueprint will simplify the current array of tax benefits for families
looking to make education more affordable for their children.
Individual Exclusions and Deductions
• Under this Blueprint, the core component of the individual tax base will
be compensation received. Businesses will deduct compensation paid
to their employees and workers. Generally, the tax system should use
the same definition for taxable compensation of employees as it does
for compensation employers may deduct.
TAXWISE GIVING
ADDITIONAL
BLUEPRINT
PROVISIONS—
AFFECTING
INDIVIDUALS
(Cont.)
December 2016/January 2017
13
• Families and individuals generally will include in income any
compensation received related to employment or selfemployment. Two pressing national priorities—quality health
care and retirement security—require exceptions to this general
rule. The exclusion for employer-provided health insurance and
related health provisions in the tax code (such as health savings
accounts and flexible spending arrangements) are major
components of our nation's healthcare system and therefore are
being addressed in the context of the work of the Health Care
Task Force.
• The Committee on Ways and Means will examine existing tax
incentives for employer-based retirement and pension plans in
developing options for an effective and efficient overall approach
to retirement savings.
• To simplify tax filings further for middle-income families, this
Blueprint reflects the elimination of all itemized deductions
except the mortgage interest deduction and the charitable
contribution deduction. These two provisions help accomplish
two important goals that strengthen civil society: homeownership
and charitable giving.
Homeownership
• Historical data show that the strength of the nation's housing
market is tied more closely to the health of the overall economy
than to any specific tax policies that might be in place. The best
way to promote a thriving housing market is to improve the
overall economy, which is precisely what comprehensive tax
reform will achieve.
• Today, a taxpayer may claim an itemized deduction for
mortgage interest paid with respect to a principal residence and
one other residence of the taxpayer. A taxpayer who itemizes
deductions may deduct interest payments on up to $1 million in
acquisition indebtedness (for acquiring, constructing, or
substantially improving a residence), and up to $100,000 in
home-equity indebtedness. Under the alternative minimum tax
(AMT), however, the deduction for home equity indebtedness is
disallowed.
• The Blueprint will preserve a mortgage interest deduction for
homeowners. The Committee on Ways and Means will evaluate
options for making the current-law mortgage interest provision
a more effective and efficient incentive for helping families
achieve the dream of home ownership.
• For those taxpayers who continue to itemize deductions, [5
percent instead of current 35 percent] no existing mortgage will
be affected by any changes in the tax code. Similarly, no
changes will affect refinancings of existing mortgages.
14
December 2016/January 2017
ADDITIONAL
BLUEPRINT
PROVISIONS—
AFFECTING
INDIVIDUALS
(Cont.)
TAXWISE GIVING
• But just as importantly, because of the other provisions included
in the new tax system, far fewer taxpayers will choose to itemize
deductions, with the vast majority of taxpayers finding they are
better off by taking advantage of the larger, simpler standard
deduction instead.
Retirement Savings
• Today, individuals may contribute to Individual Retirement
Accounts (IRAs), including traditional IRAs and Roth IRAs,
subject to a variety of rules providing for contribution limits and
income phase-outs. Individuals who are covered by a 401(k) or
another employer-based retirement plan may have options for
traditional accounts or Roth accounts within those plans. These
accounts are subject to maximum elective contribution amounts.
• The Committee on Ways and Means will explore the creation of
more general savings vehicles, using as a model the retirement
accounts that have proven so successful. Universal Savings
Accounts have been proposed by many people over the years
as a way to eliminate the double taxation of savings and
investment for families, most recently by Rep. Dave Brat of
Virginia (H.R. 4094). These are accounts to which individuals
could contribute cash and over which they would have full
control of investment decisions. Account holders could withdraw
both contributions and earnings at any time, and for any reason,
without penalty.
• This Blueprint will continue the current tax incentives for
savings. The Committee on Ways and Means will work to
consolidate and reform the multiple different retirement savings
provisions in the current tax code to provide effective and
efficient incentives for savings and investment.
Other Provisions Affecting Individuals
Numerous other exemptions, deductions, and credits for individuals
riddle the tax code, making it less fair for those who cannot take
advantage of such provisions and more complicated for everyone.
These special-interest provisions require higher tax rates to
compensate for the lost revenue, thus raising taxes on others and
hurting the economy by reducing the incentives to work, save, and
invest. The Blueprint will repeal these special interest provisions to
make the system simpler, fairer, and flatter for all families and
individuals.
SMALL
BUSINESSES—
BLUEPRINT
Tax Rate Structure for Small Businesses
Today, 95 percent of businesses in the United States are operated as
sole proprietorships or pass-through entities such as partnerships,
limited liability companies (which are taxed in the same manner as
partnerships), and S corporations. Moreover, more than 50 percent
TAXWISE GIVING
SMALL
BUSINESSES—
BLUEPRINT
(Cont.)
December 2016/January 2017
15
of business income in the United States is earned through sole
proprietorships or pass-through entities.
• Business income earned through a sole proprietorship or a
pass-through entity today is reported by the owner or owners of
the business on their individual tax returns and is taxed at an
income tax rate as high as 44.6 percent.
• The Blueprint will limit the tax rate that applies to small business
and pass-through income to the 25 percent bracket. In other
words, the 33 percent bracket will not apply to the active
business income of sole proprietorships and pass-through
entities. This represents the lowest top tax rate on the income
of such businesses since before World War II.
• Under this new approach for taxing small businesses, sole
proprietorships and pass-through businesses will pay or be
treated as having paid reasonable compensation to their owneroperators. Such compensation will be deductible by the
business and will be subject to tax at the graduated rates or
families and individuals. The compensation that is taxed at the
lowest individual tax bracket rate of 12 percent effectively will
further reduce the total income tax burden on these small
businesses and pass-through entities.
• Two significant reforms with respect to the taxation of families
and individuals that are discussed above will be critically
important to the tax treatment of small businesses. With the
elimination of the individual AMT, these businesses will no
longer be burdened by the cost and complexity of this second
tax system. In addition, the elimination of the estate and
generation-skipping transfer taxes will allow family-owned
businesses to transition smoothly from generation to generation,
without the burden of the estate tax that today can leave
grieving families with no choice but to liquidate the family
business to satisfy the estate tax obligation owed to the
government upon the death of their loved one. And, during the
small business owner’s life, the elimination of these taxes will
save him or her from having to divert scarce capital to hire
accountants and lawyers to ensure that the business survives to
the next generation.
• Under this Blueprint, both small businesses organized as sole
proprietorships or pass-through entities and larger businesses
organized as C corporations will benefit from the approach that
focuses on business cash flow and provides the benefit of the
full and immediate write-off of business investments in tangible
and intangible assets.
16
December 2016/January 2017
LARGE
BUSINESSES—
BLUEPRINT
TAXWISE GIVING
Tax Rate Structure for Large Businesses
• Today, businesses operated through C corporations are subject
to corporate tax at a statutory rate of 35 percent. The Tax
Reform Act of 1986 reduced the top corporate tax rate from 46
percent to 34 percent. The corporate tax rate was increased to
35 percent several years later and has remained there ever
since. This stands in stark contrast to what our major trading
partners have done over the past 30 years. In 1986, when the
United States enacted tax reform that significantly reduced the
top U.S. corporate tax rate, the average corporate tax rate in the
other OECD countries was 47.2 percent. Today, that average
has dropped to 24.8 percent while the U.S. corporate tax rate
remains at 35 percent.
• In addition, income earned through a C corporation today is
subject to double taxation, with a second layer of tax imposed
on such income at the shareholder level through the individual
tax on dividends and capital gains recognized on disposition of
corporate shares. At the top effective individual tax rate
applicable to dividends and capital gains, this yields a total tax
burden on the earnings of C corporations that exceeds 50
percent today.
• Finally, corporations today face the added burden of the
corporate alternative minimum tax (AMT), which requires a
second, separate tax calculation. The corporate AMT is imposed
at a rate of 20 percent and generally applies above an
exemption amount of $40,000, with an exemption for certain
small corporations. The tax base for the corporate AMT reflects
the effective add-back of many business tax deductions that are
allowed for regular tax purposes but not AMT purposes.
Corporations are required to pay the higher of the regular tax
and the AMT and receive a credit for AMT paid that is carried
forward to be applied to offset regular tax in future years.
• The Blueprint will lower the corporate tax rate to a flat rate of 20
percent. This represents the largest corporate tax rate cut in
U.S. history. The Tax Reform Act of 1986 reduced the corporate
tax rate by 26 percent (12 percentage points). This Blueprint will
reduce the corporate tax rate by 43 percent (15 percentage
points). Economists at the OECD and elsewhere have identified
the corporate income tax as the most harmful of all forms of
taxation in terms of the adverse effect on growth. This dramatic
reduction in the corporate tax rate will mean a dramatic
reduction in the drag on American economic growth that results
from the corporate income tax.
• At the same time, the effective double taxation of corporate
income will be reduced through the reduction in the tax on
TAXWISE GIVING
LARGE
BUSINESSES—
BLUEPRINT
(Cont.)
December 2016/January 2017
17
dividends and capital gains of individual shareholders.
Individuals will be taxed at just half the regular individual tax rate
on both dividends paid on corporate shares and capital gains
recognized on dispositions of corporate shares.
• In addition, this Blueprint will repeal the corporate alternative
minimum tax (AMT). Like the individual AMT, the corporate AMT
imposes burdens in the form of both direct tax costs and the
cost of complexity. In its 2001 tax simplification report, the Joint
Committee on Taxation concluded that the AMT “no longer
serves the purposes for which it was intended” and recommended its repeal. The Blueprint follows that recommendation,
putting an end to the unnecessary burdens of the corporate
AMT.
TAX REDUCTION
LEGISLATION—
HOW COST
DETERMINED
The cost depends on whether static or dynamic scoring is used.
Let’s first talk about the Butterfly Effect. Can the flap of a
butterfly's wings in Brazil set off a tornado in Texas? Of course, that
can’t cause the tornado. But can the flap be part of an initial condition
that leads to other conditions that cause a chain of events eventually
leading to a tornado? And suppose 100,000 seagulls also flap their
wings. What is their direction of flight? Same direction? All over the
place?
Now we’re ready to talk about the behavioral and economic
consequences of tax-law changes as predicted by static and
dynamic scoring methods.
Static scoring. A change in tax rates reduces or increases
government revenue commensurate with the tax. Not a butterfly or
seagull in sight.
Dynamic scoring. Proponents say that revenue tends to change in
the opposite direction of tax increases or decreases due to the
response of the individuals and businesses affected.
In short. Static scoring traditionalists hold that lower taxes will reduce
revenue, while those in the dynamic scoring camp (including House
Ways and Means Chairman Kevin Brady (R-TX) and House Speaker
Paul Ryan (R-WI)) say that lower taxes stimulate economic growth
and thus increase and expand the tax base. Revenues can be neutral
or even increase.
The House of Representatives has voted to use dynamic scoring in
determining most tax change legislation. The Joint Committee on
Taxation has said it will continue to use static (conventional) scoring.
But legislation qualifying for a dynamic score will also have that score.
18
December 2016/January 2017
TAXWISE GIVING
TAX REDUCTION
LEGISLATION—
HOW COST
DETERMINED
(Cont.)
Teitell scoring. The talk of imminent tax reform—even though
Congress does nothing about it—stimulates significant economic
growth: lobbyists are hired, travel increases, hotel rooms are booked,
Washington restaurants flourish, trees are felled to produce paper for
position papers. You get the idea.
TAX LEXICON—
“TAX LEX”
Loophole. In the beginning, the loophole was a small opening in
medieval fortresses that widened inward—allowing defenders to fire
on attackers with minimal exposure. Even shields had loopholes that
soldiers could peer through without letting down their guards. By the
17th century, “loophole” had also come to mean a way of escape.
Today, a loophole is a way of getting around the intent of a law. It
retains some flavor of the earlier meaning: a privileged or
advantageous position not available to those on “the other side.” Tax
deductions are often called loopholes. But if Congress intends the
benefit, it isn’t a loophole. For example, you can deduct certain
medical expenses. That’s not a loophole because Congress doesn’t
want sick individuals to be wiped out by medical bills.
Tax expenditure. A tax provision that excludes income from taxation
by way of a deduction, credit or other benefit. In budget analysis this
is regarded as analogous to a government expenditure; thus the term
“tax expenditure.” Some argue that this theory violates the deeply
ingrained principal that income belongs to those who generate it and
that only through the democratic process becomes subject to taxation.
Broaden the base (Rob Peter to pay Paul). This goes hand in hand
with lowering the tax rates. The base is broadened by reducing or
eliminating the benefit of deductions, credits and “loopholes.” The
government will collect the same or greater amounts in taxes, but you
will pay a lower rate on higher amounts of taxable income. Base
broadening can result in winners and losers—and some taxpayers will
come out even. Where you come out, will depend on whether or not
you are the man behind the tree. (See Senator Russell Long’s Tax
Reform Rule, below.)
Tax gap. This is the gulf between taxes legally owed and taxes
actually collected on time. The tax gap is widened by illegal tax
schemes and nonpayment of taxes resulting from understating
income. Or income may not be reported at all—the so-called
underground economy. The tax gap also results from the overstating
of deductions. Take Harold’s Delicatessen, as an example. Harold
reported $175,000 of income for the year. On audit, the IRS agent
was satisfied that he had reported every penny of income, but the
agent questioned the $90,000 travel expense deduction for trips to
Europe by Harold and his wife. Harold explained, "We deliver!"
The Tax Gap is not a clothing store for CPAs.
TAXWISE GIVING
TAX LEXICON—
“TAX LEX”
(Cont.)
WARREN
BUFFETT—
THE ESTATE TAX
AND STEPPED-UP
BASIS
December 2016/January 2017
19
Senator Russell Long’s Tax Reform Rule. “Don’t tax you, don’t tax
me. Tax the man behind the tree.”
Scarlett O’Hara Rule. “I can’t think about that right now. If I do, I’ll go
crazy. I’ll think about that tomorrow.” In Congress, this is “the kick-thecan-down-the-road” rule. Caution. Frankly, my dear readers, the
Congress and the President-elect do give a damn about tax reform
and are promising to act swiftly.
Warren Buffett, CEO of Berkshire Hathaway, at a November 14,
2007 Senate Finance Committee hearing, testified strongly in
favor of retaining the estate tax. He suggested a gradual slope in
rates above a $4 million exemption (indexed for inflation) with a top
rate higher than the then 45 percent.
Mr. Buffett began his statement to the Committee by speaking
about:
The intellectual dishonesty employed by those who use the phrase
“death tax.” This term is clever, it is Orwellian, and it is, if you'll
pardon the expression, dead wrong.
More than 2.4 million Americans will die this [2007] year. About
12,000 of them will leave an estate that will be taxed when the
exemption goes to $3 million, as Senator Grassley mentioned. It
will be 9,000 estimated and it's been 19,000 when the exemption
was (lower.)
Mr. Buffett commented on stepped-up basis:
. . . 99-and-a-half percent of estates will be tax-free. You would
have to attend 200 funerals to be at one at which the decedent's
estate owed a tax. Indeed, far more people who die receive a large
tax benefit. I don't think that's generally understood. Namely, a
stepped-up basis on appreciated assets.
If people insist on renaming the estate tax, it would be more
appropriately labeled the “death present.”
TEITELL’S
POSITION—THE
ESTATE TAX
I testified at that Senate Finance Committee hearing. The SFC
invited me to give my opinion on the difficulties of planning estates
under the then law. The Committee didn’t invite me to testify on
whether there should or shouldn’t be an estate tax.
Nevertheless, early in the hearing I was asked my opinion on the
estate tax. Here’s how I answered:
When asked his position on whiskey, a legendary politician
replied:
If, by whiskey, you mean the devil’s brew that has wrecked millions of
marriages, taken the bread from the mouths of hungry children and has
toppled countless men and women from the pinnacle of righteousness,
then I am against it!
20
December 2016/January 2017
TEITELL’S
POSITION—THE
ESTATE TAX
(Cont.)
TAXWISE GIVING
But, if by whiskey you mean the oil of convivial conversation, the
traditional expression of Christmas cheer, the source of millions of tax
dollars for orphans, disabled children and the blind, then I am for it!
This is my firm stand, and I will not compromise!
No doubt if asked his position on the estate tax, he would have
responded:
If, by the estate tax, you mean a tax that punishes hard work, prevents
people from passing the fruits of their labor to their heirs and forces the
sale of farms and small businesses, then I am against it!
But, if by the estate tax you mean the a source of essential revenues for
the federal government to serve our citizens, a crucial supplement to the
funds needed by the states for the general good and a way to prevent
an aristocracy of inheritance, then I am for it!
This is my firm stand, and I will not compromise!
TAX REFORM
HISTORY—DON’T
IGNORE
In 1969 the House of Representatives passed a major tax
revision bill that decreased tax incentives to charitable giving.
When it came to planned giving, the House bill authorized only one
life-income gift—what we now call the Standard Charitable Remainder
Trust (STAN-CRUT). Although the House bill eliminated a number of
abuses, it had overcorrections and unintended side effects. It also
didn’t authorize long-established and non-abuse life-income and splitinterest charitable gifts.
Charities awakened. When the Senate Finance Committee held
hearings on the House bill, a number of charities’ representatives
testified. And, many charities submitted written comments. Also,
charities met with key senators.
The Senate Finance Committee reported out a bill favorable to
charities and it passed in the Senate. After some changes in the
Senate-House Conference Committee, both houses passed the law
known as the Tax Reform Act of 1969 (TRA ‘69). That law provides
for charitable gift annuities, pooled income funds, gifts of charitable
remainder interests in personal residences and farms, and net income
with make-up (and without make-up) charitable remainder unitrusts (in
addition to the STAN-CRUT). Charitable lead trusts were also
authorized.
Crucial to passage of provisions favorable to charities and their
donors was the support of a key staff member who was highly
respected by the chairmen of the House and Senate tax
committees. That support resulted from periodic meetings over the
years that the staffer and charities’ representatives had to discuss
mutual concerns.
TAXWISE GIVING
TAX REFORM
HISTORY—DON’T
IGNORE
(Cont.)
December 2016/January 2017
21
Sitting on my mother’s knee, I heard Senator Al Gore Sr. (the Vice
President’s father) responding to a witness at the SFC hearing who
cautioned the Committee not to throw the baby out with the bath
water. Senator Gore roared: “The charitable deduction is no baby. It’s
a mature loophole.”
The lesson. Charities should tell the members of the House Ways
and Means Committee and the Senate Finance Committee—and their
House and Senate legislators not on those committees—how they
serve their communities and the nation and the importance of taxencouraged gifts to fund their work.
Legislators and their staffs often say, “If this is so important, why
haven’t we heard from the charities?” Just recently, the Chief of
Staff of an important legislator said: “‘There was not a lot of chatter’
from the charities.” He suggested that charities in large numbers
contact their legislators and go to:
waysandmeans.house.gov/taxreform, click on “Click Here to Give
Your Feedback.”
BLUEPRINT—A
BRAND-NEW IRS
A New Tax Administrator for a New Tax Code
An integral element of this Blueprint will be to rebuild the IRS into a
modern and efficient 21st century administrator of the nation’s tax
system. The new IRS will have a streamlined structure aligned with the
simpler and fairer tax system for families and individuals and
businesses of all sizes.
• Streamlined Taxpayer Service Agency. With a dramatically simpler
tax code, the Blueprint will create a new streamlined IRS dedicated
to delivering world-class customer service. The new IRS will be
centered on three major units: families and individuals, businesses,
and an independent “small claims court” unit.
•
The families and individuals unit will focus on providing state of the
art customer service so that taxpayers can get efficient help and
answers to their tax questions.
•
The business unit will focus on administering the new tax code for
businesses of all sizes and types, including specialists with expertise
on the issues facing start-up entrepreneurs and small businesses
and specialists with expertise on the issues facing large domestic
companies and American-based global corporations.
•
The “small claims court” unit will be independent of the new IRS.
This will allow routine disputes to be resolved more quickly, so that
small businesses no longer spend more in legal fees to resolve a
dispute with the IRS than the amount of tax that was at stake.
Together, these three units will be the core of the new IRS’s commitment to
Service First. Each will have an efficient and accountable workforce
specially trained to handle matters relevant to taxpayers in their particular
area of responsibility. And each of these units will have access to a modern
taxpayer records system and internal communications that are secure and
comply with record-retention requirements.
22
December 2017/January 2018
BLUEPRINT—A
BRAND-NEW
IRS
(Cont.)
TAXWISE GIVING
The new IRS will be headed by a newly appointed Administrator
whose sole objective will be to manage the agency and
administer the new tax code in an impartial, non-political manner
for the benefit of American taxpayers. The Administrator will be
appointed by the President with the advice and consent of the U.S.
Senate and will have a term of three years. The President may
reappoint the Administrator only once, which will ensure new
management perspectives and prevent entrenchment of bureaucrats.
The new IRS will have a team of legal professionals dedicated to
providing guidance and other information so taxpayers can apply
the new tax code to the particular circumstances of their lives
and businesses. While much of the current-law complexity can be
eliminated under the new simpler, fairer, flatter code, questions will
certainly arise about how the new rules apply in certain cases,
especially as the economy continues to develop new business
models. The new IRS will be prepared to provide that guidance in a
thorough and timely fashion.
A Service First Mission
The new IRS will have a singular mission: Service First. Taxpayers
will be able to count on an agency that will administer the nation’s tax
laws in a fair, consistent, and efficient manner while recognizing that
Americans pay their taxes voluntarily and that their tax dollars fund
the Federal government.
To that end, all employees of the new IRS will be held accountable to
the Taxpayer Bill of Rights, which includes the right of all taxpayers to:
Be informed; quality service; pay no more than the correct amount of
tax; challenge the position of the IRS and be heard; appeal a decision
of the IRS in an independent forum; finality; privacy; confidentiality;
retain representation; and a fair and just tax system.
By respecting these rights, the new IRS will perform its role without
undue burdens and interference in the lives of American families,
workers, and business owners.
Commitment to Taxpayer Assistance
The new IRS will have modern and effective information systems that
reflect the Service First mission. The agency must have options for
taxpayers to communicate with the new IRS in an easy and efficient
manner tailored to the taxpayer, not a one-size fits-all approach.
This will include easily accessible online resources for all taxpayers
as well as printed information for those who prefer it. In addition,
modern and secure systems will be needed to process the new
simplified tax returns and maintain taxpayer account records in
accordance with Federal law—all with the priority of protecting
taxpayer privacy and ensuring information security.
TAXWISE GIVING
December 2016/January 2017
23
SIMPLE, FAIR “POSTCARD” TAX FILING
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Wage and compensation income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1_______
Add ½ of investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2_______
Subtract contributions to specified savings plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3_______
Subtract standard deduction OR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4_______
Subtract mortgage interest deduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5_______
Subtract charitable contribution deduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6_______
Taxable income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7_______
Preliminary tax (from tax table). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8_______
Subtract child credit.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9_______
Subtract earned income credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10______
Subtract higher education credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11______
Total tax.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12______
Subtract taxes withheld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13______
Refund due/taxes owed.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14______
House Ways and Means Committee*
Republicans
Kevin Brady, Chairman (TX)
Sam Johnson (TX)
Devin Nunes (CA)
Pat Tiberi (OH)
Dave Reichert (WA)
Charles Boustany (LA)
Peter Roskam (IL)
Tom Price (GA)
Vern Buchanan (FL)
Adrian Smith (NE)
Robert Dold (IL )
Lynn Jenkins (KS)
Erik Paulsen (MN)
Kenny Marchant (TX)
Diane Black (TN)
Tom Reed (NY)
Todd Young (IN)
Mike Kelly (PA)
Jim Renacci (OH)
Pat Meehan (PA)
Kristi Noem (SD)
George Holding (NC)
Jason T. Smith (MO)
Tom Rice (SC)
Democrats
Richard Neal, Ranking Member (MA)
Sander Levin (D-MI)
John Lewis, (GA)
Xavier Becerra, (CA)
Lloyd Doggett, (TX)
Mike Thompson, (CA)
John B. Larson, (CT)
Earl Blumenauer, (OR)
Ron Kind, (WI)
Bill Pascrell, (NJ)
Joseph Crowley, (NY)
Danny K. Davis, (IL)
Linda Sánchez, (CA)
*Members 114th Congress. Few changes are expected in the 115th Congress (2017-18).
Senate Finance Committee*
Republicans
Orrin G. Hatch, Chairman (UT)
Chuck Grassley (IA)
Mike Crapo (ID)
Pat Roberts (KS)
Michael B. Enzi (WY)
John Cornyn (TX)
John Thune (SD)
Richard Burr (NC)
Johnny Isakson (GA)
Rob Portman (OH)
Patrick J. Toomey (PA)
Dan Coats (IN)
Dean Heller (NV)
Tim Scott (SC)
Democrats
Ron Wyden, Ranking Member (OR)
Charles E. Schumer (NY)**
Debbie Stabenow (MI)
Maria Cantwell (WA)
Bill Nelson (FL)
Robert Menendez (NJ)
Thomas R. Carper (DE)
Benjamin L. Cardin (MD)
Sherrod Brown (OH)
Michael F. Bennet (CO)
Robert P. Casey, Jr. (PA)
Mark R. Warner (VA)
Claire McCaskill (MO)**
*Members 114th Congress. Few changes are expected in the 115th Congress (2017-18).
**This just in. Claire McCaskill (D-MO) replaces Charles E. Schumer (D-NY) who is the new Senate Minority Leader.
Contacts with Senator Schumer are now more important than ever.
24
2424
2424
Taxwise
Giving
December
2016/January
2017
Taxwise
Giving
December
2016/January
20
Taxwise
Giving
December
2016/January
2017
Taxwise
Giving
December
2016/January
2017
Taxwise Giving
December 2016/January 2017
B
B
B B
est
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wishes for
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taxable
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CHARITABLE M ID-TERM FEDERAL RATES FOR
CHARITABLE M ID-TERM FEDERAL RATES FOR
SPLIT
INTEREST
GIFTS
— 2016
CHARITABLE
M
ID-TERM
FEDERAL
RATES
FOR
SPLIT
INTEREST
GIFTS
CHARITABLE
M ID-TERM
FEDERAL
RATES
FOR
CHARITABLE
M ID-TERM
FEDERAL
RATES
FOR — 2016
February
—
2.0%
March — 1.8%
January
— 2.2%
SPLIT
GIFTS
—
2016
March — 1.8
January
— INTEREST
2.2%
SPLIT
INTEREST
GIFTS
— February
2016
SPLIT
INTEREST
GIFTS
—
2016 — 2.0%
April
—
1.8%
May
—
1.8%
June — 1.8%
February
—
2.0%
March
—
1.8%
January
—
2.2%
April — 1.8% February — 2.0%May — 1.8%
June — 1.8
March — 1.8%
January
——
2.2%
January
2.2%
July — 1.8% May — 1.8%
August — 1.4% June — 1.8%
Septem ber — 1.4%
April
—
1.8%
July — 1.8%
August — 1.4% June
Septem ber — 1.4
April
——
1.8%
May
—
1.8%
—
1.8%
April
1.8% October
May
—
1.8%
June
—
1.8%
— 1.6%
ber —
1.6% ber — 1.4%
Decem ber — 1.8%
July
—
1.8%
August
— 1.4% Novem
Septem
1.6%
—
1.6%
Decem ber — 1.8
October —
July
——
1.8%
August
— 1.4%
berber
——
1.4%
July
1.8%
August
— 1.4% Novem berSeptem
Septem
1.4%
—
1.6%
Novem
ber
—
1.6%
Decem
ber
—
1.8%
October
October
——
1.6%
NovemNovem
ber — ber
1.6%
Decem
berber
——
1.8%
1.6%
— 1.6%
Decem
1.8%
October
CHARITABLE M ID-TERM FEDERAL RATES FOR
CHARITABLE M ID-TERM FEDERAL RATES FOR
INTEREST
GIFTS
— 2017
CHARITABLE M
M ID-TERMSPLIT
FEDERAL
RATES
FOR
SPLIT
INTEREST
GIFTS
CHARITABLE
FEDERAL
RATES
FOR
CHARITABLE ID-TERM
M ID-TERM
FEDERAL
RATES
FOR — 2017
SPLIT INTEREST
INTEREST GIFTS
GIFTS —
— 2017
2017
SPLIT
SPLIT INTEREST
GIFTS —
2017
January — 2.4%
January — 2.4%
January —
— 2.4%
2.4%
January
January —
2.4%
Caution: Low rates m ay result in not m eeting the 10 percent m inim um rem ainder
Caution: Low rates m ay result in not m eeting the 10 percent m inim um rem ainde
I predict that the
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onth ofBack
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'94,
December. For how
preceding m onths. Back
reference.
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Valuation Regulations, Taxwise
Giving,
July
'94,
page
2.
preceding m onths. Back reference. Split-Interest Valuation Regulations, Taxwise
the changes in the
Giving, July '94, page 2.
Giving, July '94,For
page
2.
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rate affect the value
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Deemed
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Deemed rate of return for young pooled income funds. If a pooled fund has le
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than three taxable
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the
2015,
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and the
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ised
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percent
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charitable deduction.
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the For
actual
year
of
the1.4
gift.
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2015,
2016
and
2017
it
is
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and for 201
charitable deduction.
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was 1.8
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the
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it
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it
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it
2015, 2016 and 2017
2017
it
is
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for
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recom
putes
the
deem
ed
rate
each
calendar
year.
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2015, 2016 andeach
2017
it is 1.2
percent.
2014 it was 11.4
percent
and
forhighest
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by rate
subtracting
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ed
each
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year.
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of
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onthly
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for
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to
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each year's deem edofrate
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0
each year's deem
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subtracting
1Split-Interest
percent
fromValuation
the
highest
annualrounded
average
percent.
reference.
Regulations,
Taxwise
Giving,
July
of the m onthly ratespercent.
to the
nearest 0.2Taxwise Giving, J
for the three
prior
calendar
years, rounded
Back
reference.
Split-Interest
Valuation
Regulations,
of the m onthly '94,
ratespage
for the
calendar years, rounded to the nearest 0.2
2. three prior
aluation Regulations, Taxwise Giving, July
percent. Back reference.
V
Split-Interest
Valuation
'94, page
2.
percent. Back reference.
Split-Interest
Valuation Regulations, Taxwise Giving, July
'94, page 2.
'94, page 2.
M ature pooled income funds. Donors to funds with m ore than three taxable years
M ature pooled income funds. Donors to funds with m ore than three taxable yea
experience
com
pute the
deduction
using
the highest
rate ofyears'
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taxable
M ature pooled income
funds.
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funds
with m
ore
than
three
experience
com
putetothe
deduction
using
the
highest
rate ofyears'
return from the fun
M ature pooledthree
income
funds.
Donors
to funds
with m
ore than
three taxable
previous
years.
experience com pute
the
deduction
using
the
highest
rate
of
return
from
the
fund's
three
previous
years.
experience com pute the deduction using the highest rate of return from the fund's
three previous years.
— information
2.0%
March
—covered.
1.8% It is published with
previous
years.
Taxwise Givingthree
is written
to provide
accurate andFebruary
authoritative
in regard to the subject
matters
Taxwise Giving is written to provide accurate and authoritative information in regard to the subject matters covered. It is published wi
the understanding that in this publication the authors are not engaged in rendering legal, accounting, or other professional service. If legal
the
understanding
that
in this
publication
the authors
not engaged
in rendering
accounting,
or otherwith
professional service. If leg
Taxwise Giving is written
to provide
and
authoritative
information
inare
regard
is published
the subject
matterslegal,
covered.
advice
or provide
otheraccurate
expert assistance
is required,
the services
of atocompetent
professional
personItshould
be sought.
(From a Declaration
Taxwise Giving is written
to
andare
authoritative
information
in regard
tocompetent
the subject
matters covered.
is published
with
advice
or otheraccurate
expert
assistance
required,
the
services
of aaccounting,
professional
personItservice.
should
be
sought.
(From a Declaratio
authors
notisengaged
the understanding thatofinPrinciples
this publication
rendering
legal,
or
other
professional
If legal
jointlythe
adopted
by a are
committee
of in
the
American
Bar
Association
and
aother
committee
of Publishers
and
Associations.)
the understanding
that
in
this
publication
the
authors
not
engaged
in
rendering
legal,
accounting,
or
professional
service.
If
legal
of Principles
jointly adopted
by a committee
of the professional
American Bar
Association
a committee
and Associations.)
is required,
the services
of a competent
person
should and
be sought.
Declaration
advice or other expert assistance
(Fromofa Publishers
advice or other expert assistance is required, the services of a competent professional person should be sought. (From a Declaration
of Principles jointly adopted
by a committee
of the
American
Bar
Association
a committee
of Publishers
and
Associations.)
NOTICE:
This
publication
isBar
notAssociation
intendedand
or written
to be used,
cannot
be
used, for the purpose of avoiding penalties
of Principles jointlyCIRCULAR
adopted
by230
a committee
of
the
a committee
ofand
Publishers
and
CIRCULAR
230 NOTICE:
ThisAmerican
publication
is not intendedand
or written
to be used,
and cannot
be Associations.)
used, for the purpose of avoiding penaltie
under the Internal Revenue Code or promoting, marketing or recommending to anyone in the universe anything it contains.
the InternalisRevenue
Code
promoting,
marketing
or recommending
to anyone
universe
anything it contains.
not intended
intended
oror
purposeinofthe
CIRCULAR 230 NOTICE:under
This publication
not
or
written
to be used,
and cannot
be used, for the
avoiding
penalties
CIRCULAR 230 NOTICE: This publication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties
under the Internal Revenue Code or promoting, marketing or recommending to anyone in the universe anything it contains.
under the Internal Revenue Code or promoting, marketing or recommending to anyone in the universe anything it contains.