Never-ending tax changes create real jeopardy
People complain about the tax laws. Even CPAs and tax attorneys complain about the tax laws. But my experience is that the reasons are very different.
One of the few members of Congress who ever understood the tax laws, former Sen. Russell Long, once said the desire of the citizenry is “don’t tax you, don’t tax me, tax the fellow behind the tree.” A taxpayer’s complaint is often that he or she pays too much tax.
Tax experts’ complaints are often that the law is difficult to live with because it changes all the time. Not that it’s too complicated. If you deal with something every day of your working life you can live with complexity.
What you can’t live with is uncertainty wrought by the rules changing every few years. This uncertainty places in jeopardy not the adviser, but the businessperson for whom the advice is intended.
The 2017 tax legislation changed the incentives to create, or to maintain, certain types of business forms. But the changes affect only certain situations involving certain businesses.
The problem in suggesting a structural change to a specific business is less knowing whether it is best given the current law, but whether the current law will still be the law in two years. Some changes may require permanence for 10 years.
Business leaders have always told legislators that they do not like uncertainty. Uncertainty exists on its own in the world. That must be dealt with. But when legislation changes like the spring winds, business gets frustrated.
Automobile manufacturers have targets to reduce emissions by 2025. This is a long-standing federal policy rolled out over a specified period. One-third of the states, California most notably, have their own standards.
The Trump administration has proposed freezing the standards at current levels. We always hear that businesses like regulatory rollback. Except when they don’t. A letter from 17 manufacturers to the administration opposes the rollback.
For one thing, state laws will not change. And California has said it will sue to enforce its standards. And even if states comply, the proposed change is not a change in law. If there is a new sheriff in town in 16 months, the change may not stand.
Planning for engineering and manufacturing cars takes time. One cannot simply start and stop the process on an ongoing basis. Too much uncertainty.
I like old-fashioned baseball rules. I never liked the designated hitter rule and hope the National League holds out. I didn’t like the change that allows an intentional walk without throwing a pitch. As Dodger great Don Drysdale said, you can just hit the batter to save throwing extra pitches.
But I can deal with the changes, even if I don’t like them, as long as you don’t change them back and forth every two years. Too much uncertainty for no good reason.
President Trump has proposed indexing capital gains for inflation. This means the tax basis of the property would be adjusted for inflation, so only “real” gains are taxed. The administration says this can be done by regulation without the involvement of Congress.
This is one of those Whiskey-Tango-Foxtrot proposals that we should all oppose. Why? The proposal is probably not legal, and even if it is, it will almost certainly be reversed in the same manner, without the involvement of Congress, in a new administration.
We had double-digit inflation in 1979 and 1980, and indexing was discussed in a serious manner. Policy experts pointed out that the favorable tax rate for capital gains addresses the inflation-induced gain issue, even if it is rough justice.
Now with annual inflation averaging under 2% in the last 12 years we’re discussing inflation adjustments to the cost basis of capital assets?
Why complicate things when inflation has little impact on asset values? Well, it’s probably not a serious proposal. We are in an election cycle. But many people will take it as serious.
CPAs will field questions from people with longheld assets asking if they should defer selling until the inflation adjustment occurs. Regulation for uncertainty.
Former Treasury Secretary William Simon said that the United States deserves a tax system that looks like it was designed on purpose. We’ve failed. But cutting the legislative branch out of the lawmaking process isn’t a move in the right direction. Jim Hamill is the director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa. com.