Washburn: Don't Tax You, Don't Tax Me, Tax The Fellow Behind The Tree

Well, the election is over thank goodness and all of tax change promises are coming home to roost.

All proposed tax code changes are scored by the deep state using a static scoring method that purposely ignores macroeconomic parameters and is widely reported in the media. The dynamic scoring method is a more encompassing method and is largely ignored. The deep state considers tax money belonging to the government and not the peoples.

A tax bill will come forward and it will be passed because it will be treated as a budget reconciliation bill requiring a majority of both houses and not 60 votes to pass in the senate. As a CPA who specialized in tax law, this is my view of what might happen acknowledging what happens behind closed doors remains a sausage making process and can be seemly at times. Tax law creates winners and losers and has been used to expand the welfare state without expanding the bureaucracy to support it.

High up on the Trump agenda will be making the 2017 tax law change permanent. Add to that certain campaign promises. First off was to make tip income tax free. Yes, this would be a revenue loss but who receives tips. The average tip receiver has been reported to receive approximately slightly over $6,000 a year in tips. They are mostly woman and mostly single parent households to support. To me this is a win- win tax change.

Next up was to make Social Security payments tax exempt. Social Security was created to supplement your retirement plans and has become the primary retirement vehicle for many. Originally, Social Security payments was not taxed but in the case of W-2 employees 50% of the payments were made by employers. So, eventually 50% was taxed as ordinary income. Self-employed individuals paid into the system 100%. Needing additional revenue, it was upped to 85%. The purchasing power of the after-tax contributions is rarely replaced. The recent government caused inflationary devastation has left Social Security recipients in the lurch. I can visualize a phase in over time as this would seriously help out a significant segment of the retirement community deserving a tax break.

In terms of reducing corporate taxes, I think they should be focused and small business that remain the number one job creator. I would double the Qualified Business Income Deduction for unincorporated businesses and for small business corporations (under $250,000,000 in sales) reduce the tax rate.

Two proposals that could only be suggested by a “Rich man north of Richmond” would increase the start-up cost write-off to $50,000 and a $20,000 give-a-way to minority new businesses. Currently, start-up cost can be expensed at $5,000 the first year and then amortized over a 5-year period. The biggest failure reason for new businesses is the failure to estimate the time needed to achieve break-even and the capital required to achieve same. There is no cap on legitimate start-up costs and to write off these costs to need taxable income.

The only tax takeaway promised by Trump was to eliminate the $7,500 tax credit for the purchase of EV vehicles. This might result in the immediate lowering of the price of these vehicles by $7,500 and might ease the drain on the treasury for this stylish consumer purchase. Automobile manufacturers are losing billions making cars few want to buy or can afford to buy.

While congress continues to expand the deficit and debt without concern how it damages the overall economic state of our country the latest creation to expose and cure governments waste holds promise but I can still remember the annual “Golden Fleece” awards given be the late Senator William Proxmire. It made for interesting reading but Congress ignored the results. Resistance from Democrats who strive to protect the deep state is already in play. I await the recommendations but have little confidence in any favorable outcome.

The real answer to how to pay for the tax changes is in all honesty is you can’t, but you can make changes that levels the playing field. Congress and the current administration have squandered trillions. Easing back will be a welcomed change. The current thinking and I use that term advisably is that debt level is not a consideration. I strongly disagree. My solution is a 7% royalty on all new oil and mineral leases on government property dedicated to debt reduction. This would require congressional action and I don’t think there is any resolve here.

My list of tax changes includes the following:

Make Carried Interest taxable as ordinary income subject to Social Security taxes. Carried Interest is how hedge fund managers are compensated and is taxed as a capital gain.

President Eisenhour loved golf and Augusta National and as a result you can rent out your property for 14 days and not pay any taxes on the income. Currently if you live near a prestigious golf course or New Orleans, you can rent out your home for $40-50,000 and not pay a dime in tax.

IRS Code Sec. 1031. Real Estate remains the best way to launder untaxed income. You buy a property, use untaxed income to improve it and then under SEC 1031 trade for a similar property and differ the tax on the sale until the property is finally sold. Until then, you can borrow money on the enhanced value on the property and not pay tax on the borrowed money.

My final change is to tax swag bags. Swag bags given to the beautiful people attending the Academy Awards and other awards show are currently untaxed to the recipient. I would make them fully taxable.

With the Republicans controlling both houses and the White House, they have the opportunity to make significant changes for the better. They only have two years to accomplish anything as if trends continue the Democrats will likely gain control of both houses in the off- year elections.

The first two agenda items in 2025 will be taxes and securing our open borders. It will be interesting to watch as all the usual characters will show up to support and oppose proposed changes. Our economy hangs in the lurch and it will be interesting to see what will happen.