Tax Reform Bill

Senate Unveil Tax Reform Bill

Senate Finance Committee members Ron Wyden, D-Ore., and Judd Gregg, R-N.H., on February 23 unveiled a broad tax reform proposal that they say would create a simpler and fairer system by lowering tax rates and eliminating narrow tax breaks that benefit special interests. The plan would also simplify tax returns into a one-page Form 1040.

The most significant individual provisions of the Bipartisan Tax Fairness and Simplification Bill of 2010 would reduce the number of income tax brackets from six to three –15 percent, 25 percent and 35 percent –increase the amounts of the standard deduction, eliminate the alternative minimum tax and allow an exclusion for capital gains. On the business side, the proposal would establish a single corporate income tax rate of 24 percent and allow a simplified cash flow accounting for businesses with gross receipts of less than $1 million per year.

“By simplifying the tax code and scaling back tax breaks for special interests, we can give everyone an opportunity to get ahead. Businesses of all sizes will be in a better position to compete and grow jobs. Working families will keep more of their hard-earned dollars, and everyone will spend a lot less time filling out tax forms,” said Wyden.

Preliminary revenue projections for the measure provided by the Congressional Research Service and based on Joint Committee of Taxation estimates of similar legislation introduced in 2007 (the Fair Flat Tax Bill of 2007 (Sen 1111)) indicated that the proposal would be deficit neutral. Much of the revenue for reform would be generated by closing corporate tax loopholes and eliminating what Wyden and Gregg termed “corporate welfare.”

The legislation also would eliminate incentives for companies to export jobs and keep their foreign earnings overseas by repealing the rule that allows U.S. companies to defer taxes on their foreign income. The bill would also require banks to identify all individuals who benefit from foreign accounts and to withhold 30 percent of all withholdable income, such as interest sent to beneficiaries that disguise their identities.

The Senate is unlikely to address the proposal in the near future given the abbreviated legislative calendar due to the 2010 elections. House Ways and Means Committee Chairman Charles E. Rangel, D-N.Y., and Senate Finance Committee Chairman Max Baucus, D-Mont., have said that comprehensive tax reform is on their agenda.

About Mike Habib, EA

Mike Habib is an IRS licensed Enrolled Agent who concentrates his tax practice on helping individuals and businesses solve their IRS & State tax problems. Mike has over 20 years experience in taxation and financial advisory to individuals, small businesses and fortune 500 companies.

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