Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

Without road map, tax reform veers all over

Ideas range from fastidious comprehensive proposal to simple flat tax

Jan 30, 2013 @ 2:46 pm

By Mark Schoeff Jr.

+ Zoom

New Year's Eve legislation that averted trillions of dollars of automatic tax increases and spending cuts was brimming with provisions that permanently extended many Bush administration tax cuts. What was missing, however, was language that provided direction on broad tax reform.

Many months ago observers had anticipated that the fiscal-cliff agreement would include a roadmap for an overhaul of the tax code, complete with an expedited timeframe to get bills through the House and Senate. Instead, the measure was silent on further reform.

Just like nature, politics abhors a vacuum. Within weeks of the opening of the new Congress earlier this month, all kinds of ideas are filling the comprehensive-tax-reform void.

One of the efforts to watch is being undertaken by House Ways & Means Committee Chairman Dave Camp, R-Mich. He is in a pivotal position to make reform happen.

Last week, Mr. Camp released the opening salvo in the effort, a “discussion draft” of legislation that would simplify and streamline the taxation of financial products, including derivatives, bonds and securities. It's a fastidious, thoughtful way to open comprehensive tax reform. For instance, Mr. Camp would tighten the way that the taxable gain or loss on securities sales is determined.

“Updating these tax rules to reflect modern developments in financial products will make the code simpler, fairer and more transparent for taxpayers; and it will also help to minimize the potential for abuse that has occurred in the past,” Mr. Camp said in a statement.

Mr. Camp has put out the discussion draft to solicit comments from experts, practitioners and the public. It's the beginning of what he promises will be a deliberative process.

On the other end of the tax-reform scale is a bill introduced by Sen. Richard Shelby, R-Ala., on Tuesday – the Simplified, Manageable and Responsible Tax Act – that would scrap the entire tax code and replace it with a flat tax of 17% with four major exemptions -- $14,070 for a single person; $17,970 for the head of a household; $28,140 for a married couple filing jointly and $6,070 per dependent.

“With the SMART Act in place, taxpayers would file a return the size of a postcard,” Sen. Shelby's office said in a statement. “There would be no more long hours spent poring over convoluted IRS forms and no more fees paid for professional tax assistance.”

Mr. Shelby dropped the flat-tax bill into the hopper along with one that would add a balanced budget amendment to the Constitution. This combination is what he called a better approach than the fiscal-cliff deal, which he voted against.

Other radical tax reform comes in the form of a measure that would replace the income tax with a national sales tax. Like Mr. Shelby's bill, that legislation is a long shot. The prospects of Democratic support are limited.

The tax changes ushered in by the fiscal-cliff bill -- as well as the insistence by President Barack Obama that deficit reduction include more tax revenue, not just spending cuts – could dim the prospects even for the comprehensive, step-by-step reform that Mr. Camp is pursuing.

“All of that just complicates the code further,” said Andrew Friedman, principal at The Washington Update newsletter. “[Tax reform] is going to be a heavy lift, especially on the individual side. I don't see anything happening in the next few months.”

Other than Mr. Camp continuing to forge ahead and his colleagues continuing to make political statements through tax bills.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

INTV

Ed Slott: Tax strategies to help clients take advantage of market declines

When the markets decline or are volatile, it is an opportunity to put a few retirement savings strategies to work, according to Ed Slott, founder of Ed Slott's Elite IRA Advisor Group.

Latest news & opinion

Is LPL's deal sweet enough for NPH's 3,200 reps and advisers?

They will have to decide if the signing package they are being offered by LPL makes sense. A lot is hanging in the balance.

Eduardo Repetto to leave Dimensional Fund Advisors

Gerald O'Reilly, currently co-CIO, will take over as co-CEO with David Butler.

Alternative strategies boomed after crisis, but haven't been tested

Because the S&P 500 has outperformed, convincing clients they need protection is a hard sell.

7 ways advisers fixed clients' biggest financial dilemmas

Sometimes it takes creativity, along with knowledge and outside help, to get a client out of a jam.

LPL Financial buys NPH, a broker-dealer network with 3,200 advisers

The deal, part of which is based on the advisers and revenue that eventually will move from NPH, could potentially cost LPL $448 million.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print