Tax Simplification
Sunday, May 8, 2011 at 05:00PM As a mom, my view of Mother’s day is thinking about the future, and what it holds for my son. He’s a strong student, so I’m optimistic he’ll be in a position to appreciate the benefits of tax planning when he’s older. Of course, what kind of planning one will be doing 20 or so years from now is a big question.
Some interesting thoughts about tax overhaul include the risk to “S” corporations from corporate tax reform. Ernst & Young sponsored a study looking at some scenarios around this issue. According to the E&Y article, it’s important to consider “S” corps because they represent more than half of all business activity. If the plan is to reduce corporate tax rates and then make up the difference through individual taxation, the E & Y scenario gurus believe the tax bill of your average “S” officer / shareholder would increase on average, by 8 percent or $27 billion annually from 2010 through 2014. Not sure how they got this nugget, but in their alternate tax reality the biggest changes in tax payments (as in paying more) would be to agriculture and mining, followed by construction and retail trade, and then manufacturing, finance and insurance.
While the piece I read was sketchy on the details, it’s worth thinking about. As we’ve seen from the current recession, what’s best for the big companies isn’t necessarily best for the economy as a whole. Small business remains the icon for what can bring back prosperity. That will certainly mean S corps matter.
An Investment newsletter for financial planners highlighted by the AICPA had similarly dire ideas around some proposed simplification tax reforms. They predict nothing bad until 2013, but in particular anticipate capital gains related tax breaks are the most at risk. Another area where the planners see issues is sheltering retirement income, if you’ve got plenty of it. That doesn’t sound so off base, as with the aging of the baby boom, most of the savings in this country will be related to retirement.
While simplifying the tax code is offered as an easier fix than cutting the budget, it’s discussions about the implications that make me think that’s going to be the hardest fix of all.