New proposal to simplify tax code might make you wince

Some higher-income professionals would pay an extra 10%
FEB 26, 2014
A new effort by the leader of a congressional tax-writing committee to simplify the tax code might put wealthy taxpayers on the hook to pay more. House Ways and Means Committee Chairman Dave Camp, R-Mich., on Wednesday introduced a discussion draft of legislation that would overhaul the U.S. tax system by streamlining the current seven tax brackets — ranging from 10% to 39.6% — to two: 10% and 25%. Mr. Camp's plan would eliminate and consolidate many tax deductions and other tax preferences, provide a more generous standard deduction of $11,000 for individuals and $22,000 for married couples and permanently repeal the alternative minimum tax. The plan is revenue neutral. At a Capitol Hill news conference, Mr. Camp acknowledged that there had to be provisions in the draft legislation to pay for lowering rates for 99% of all Americans. One way he did that is by imposing a 10% surcharge on some incomes of $450,000 or more. Those who are in farming and manufacturing, for instance, would pay a 25% top rate. Those in professional services, such as lawyers, would pay a 35% top rate. That split didn't sit well with investment advisers. “You are missing the point of tax reform if you start out with an approach like that,” said Timothy Dolan, managing principal of Dolan Capital Group. “You fail the test of fairness. You're coming out with a system that is singling out people to pay more.” Martin Hopkins, president of Hopkins Investment Management, also blanched at the surtax. “I'm very much a flat tax sort of person,” Mr. Hopkins said. “I don't agree with the concept of a progressive tax, of taxing the rich, but I understand that to get an agreement that benefits 90% of the population, you're going to have to throw it in there.” RETIREMENT SAVINGS INCENTIVES WOULD CHANGE Mr. Camp's plan also would change tax incentives for retirement savings. The plan would freeze contribution limits for 401(k) plans at the current $17,500 for the next decade. It also would require that any contribution over $8,750 be channeled into a Roth 401(k) plan on which contributions were taxed going into the plan but could be withdrawn tax-free in retirement. A summary of the tax reform plan said that 85% of retirement plan participants contribute less than $8,750 to plans annually, so they would not be affected by the change. Timothy Steffen, senior vice president and director of financial planning at R.W. Baird & Co., Inc., cautioned that Roth plans don't satisfy everyone's retirement needs. “Roth is a powerful savings tool, but it's not right for everybody,” Mr. Steffen said. Overall, though, Mr. Steffen was impressed by the tax proposal. “It greatly simplifies the tax code,” he said. “If I were to design a tax plan, I would design something along these lines.” Mr. Hopkins also endorsed the effort to prune the branches of the tax tree. “I'm encouraged by the fact that there is the intent to bring down tax rates for most people,” he said. There's little chance that Mr. Camp's plan will be enacted this year. Senate Minority Leader Mitch McConnell, R-Ky., said earlier this week that Congress will not be able to complete comprehensive tax reform. On Wednesday, House Speaker John Boehner, R-Ohio, also cast doubt on the process. Mr. Camp, who is stepping down as Ways and Means chairman at the end of the year, said that tax reform can't wait.

Latest News

Farther debuts AI investment proposal tool for advisors to win clients
Farther debuts AI investment proposal tool for advisors to win clients

"Im glad to see that from a regulatory perspective, we're going to get the ability to show we're responsible [...] we'll have a little bit more freedom to innovate," Farther co-founder Brad Genser told InvestmentNews.

Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler
Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler

Former advisor Isaiah Williams allegedly used the stolen funds from ex-Dolphins defensive safety Reshad Jones for numerous personal expenses, according to police and court records.

Are you optimally efficient?
Are you optimally efficient?

Taking a systematic approach to three key practice areas can help advisors gain confidence, get back time, and increase their opportunities.

Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida
Advisor moves: Father-son duo leaves Raymond James for LPL, RayJay adds Merrill Lynch alum in Florida

Meanwhile, Osaic lures a high-net-worth advisor from Commonwealth in the Pacific Northwest.

Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B
Beacon Pointe adds six RIAs in two-month acquisition spree, boosting AUM by $2.7B

The deals, which include its first stake in Ohio, push the national women-led firm up to $47 billion in assets.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.