House Republican Blueprint And Postcard Size Tax Return

Annette Nellen

On June 24, 2016, the House Republicans released their tax reform blueprint, the last part of their “Better Way” plan. The plan includes reasons for tax reform and the basics of the plan. There is no legislative language so the details are not all there. But, here are some highlights:

  • Aims to be revenue and distribution neutral. The revenue target is the baseline that assumes current temporary tax provisions will not expire. This allows the target to be $400 billion less than the CBO baseline which assumes that the temporary provisions expire on schedule. (page 16)
  • Dynamic scoring will be used in measuring the revenue effect. (page 16)
  • Both the corporate and individual AMT are repealed.
  • The corporate tax rate is a flat 20%.
  • Individual tax rate structure—0, 12, 25 and 33%. The 0% rate is the effective rate if income is below the standard deduction threshold and child credit amounts. Capital gains are taxed at the same rate but only 50% of investment income is taxed.
  • Active business income of an individual is taxed at no more than 25%.
  • Standard deduction for MFJ is $24,000, $18,000 for HH and $12,000 for Single.
  • Credits: EITC, modified child credit and some type of education benefit to be designed by House Ways & Means Committee.
  • Repeal the estate and generation-skipping transfer taxes; no mention of gift taxes or treatment of gains and losses at date of death.
  • Businesses—immediate expensing of assets other than land and inventory. LIFO remains.
  • Section 199 deduction and most credits other than for research are repealed.
  • Move to a territorial system and more of a consumption tax system with a goal of being allowed to tax imports and exempt exports from tax. Details missing.
  • Businesses only deduct interest expense to extent of interest income with excess carrying forward (under a true consumption tax, no interest income or expense would be reported).
  • Net Operating Losses (NOLs) carry forward forever adjusted by an interest factor. NOLs can’t reduce taxable income by more than 90%.

There are 15 specific areas where the House Ways & Means Committee is instructed to create the rule including for consolidating retirement plan rules and creating transition rules.

A centerpiece of the individual change is a postcard size return! I view this as telling us little and mostly being misleading. Our current tax system could be filed on a postcard. The size of the return submitted to the IRS just depends on how much summary information can be tolerated. Today’s postcard could have the taxpayer’s identification information, taxable income, tax, aggregate credits, refund/payment, signatures. That says nothing about the complexity of calculating all of these figures.

Here is the proposed postcard from the Republican Blueprint.

There is a lot missing from the postcard:

  • Taxpayer’s name, address, and Social Security number.
  • Dependent information.
  • Business, rental, and partnership information (Schedules C, E, and F).
  • Capital gains and loss and Schedule D.
  • Schedules for computing the credits (today forms exist for the EITC and education credits).
  • What to do with the refund (today’s return has information for direct deposit of the refund).
  • Penalty of perjury statement.
  • Taxpayer and preparer signatures.

And of course, as most people file using software and file electronically, it is not so much the size of the final return which they might not even print out, but the number of questions required to get the return completed and the number of records to be gathered and maintained to prove income, deductions, credits and estimated tax payments.

I’ll have more soon in an article I’ll post.

There are many items in the plan worthy of discussion. A lot more details are also needed for that discussion.

What do you think?

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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