Our view: Republican tax plan flunks the ‘postcard test’
When they unveiled their tax plan last month, President Trump, House Speaker Paul Ryan and other Republican leaders promised it would greatly simplify the process of filing.
As the plan heads for final votes in the House and Senate this week, their “postcard test” appears to have been all but forgotten. The measure adds layers of complexity to a tax code that is already mind-bogglingly complicated.
For evidence of the triumph of complexity, look no further than the stock prices of Intuit and H&R Block. Intuit, which makes TurboTax preparation software, is up 38% this year. H&R Block, the largest full-service tax preparer, is up 19%. In a further insult to long-suffering itemizers, the GOP bill ends the deduction for tax preparation expenses.
This tax proposal is far from the substantial reform that President Reagan delivered in 1986. It is, rather, a political document that rewards certain Republican constituencies while punishing certain Democratic ones, paid for by borrowing more than $1 trillion over the next decade.
For most Americans, April 15 won’t get any easier. And for some business owners trying to take advantage of an ill-conceived tax break, tax preparation could get dramatically worse.
Yes, the bill does have one significant bow to simplification. By doubling the standard deduction — to $12,000 for individuals and $24,000 for couples — as many as 30 million of the 44 million Americans who currently itemize might go with the simpler method of taking one big, fat deduction.
But that comes with important caveats. Most of the filers who have impossibly complex taxes are likely to be among those who continue itemizing. And filers taking the standard deduction would still have to worry about socalled above-the-line deductions (offi- cially known as adjustments to income) for such things as moving expenses, tuition, student interest payments and alimony.
They’d also have to consider credits, exemptions and exclusions. Arguably the single most complex provision of the tax code that is widely used by individual filers is the earned income tax credit, a break for people who work but still struggle to make ends meet. Nothing would change on that front.
Certain business owners, moreover, might be financial winners under this plan but at the expense of much more complicated taxes. That’s because the bill gives a break to owners of privately held companies, then, in a bid to keep that break from being abused, adds restrictive language seemingly taken from a Franz Kafka novel.
To qualify, these owners would have to show they are merely passive investors. It’s a safe bet that business owners will create numerous shell companies that own actual companies in an effort to turn active ownership into passive ownership.
Supporters of the Republican plan are right about one thing. It will create jobs all right — for accountants and tax lawyers.