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Baucus tax reforms are an opportunity for simplicity and fairness - Hungry Horse News: Opinion

Baucus tax reforms are an opportunity for simplicity and fairness

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Posted: Monday, July 22, 2013 11:31 am

Sen. Max Baucus has taken on the gargantuan task of reforming our nation’s tax code. If done right, it could turn out to be the most significant accomplishment of his career. But with well-established special interest groups standing in the way, it might be more likely that we just get more of the same, or worse yet, a bad deal for Montana.

Baucus’s decision to start from a “clean slate” differentiates this effort from past attempts at major tax reform. In other words, Baucus’s finance committee will begin by completely eliminating the existing tax code and then rebuild it from the ground up. The idea is to force special interests to justify why certain tax policies, like credits and deductions, should be included moving forward.

The ultimate objective is to reduce tax rates for everyone and make the system far simpler to navigate. That would have positive economic impacts across the board and energize America’s recovery.

This clean slate approach makes perfect sense. Our existing tax code is notoriously voluminous and complicated. Each year, American families and businesses spend an estimated 6 billion hours and $160 billion to complete their taxes. The vast morass of rules, regulations, credits and deductions makes it difficult for anyone to understand.

An unintended result of such a convoluted tax code is that we’ve made it our nation’s policy to treat some individuals and businesses as winners with preferred tax treatment — and others as losers. That’s because most tax rules were designed to incentivize certain behaviors, like home ownership or saving for your child’s college education. But as any good economist will tell you, when you use government policy to incentivize one behavior, it inevitably results in bad outcomes somewhere else.

For instance, allowing home mortgage interest deductions has helped millions of Americans achieve home ownership, but it has also incentivized buying bigger, more expensive homes and ultimately driven up the cost of housing for everyone. It also means that we pay higher tax rates, overall, to “pay” for these tax deductions.

Clearly, the more complicated we make the tax code, the more likely it is that we will have these winner vs. loser scenarios. That’s why the most important tenets of any tax reform package must be fairness and simplicity. Sticking to these we can produce a flatter, more equal progressive tax structure that everyone can understand.

It sounds so simple, but unfortunately, tax fairness will be very difficult to achieve. There are a myriad of special interest groups who will try to game the system, or worse, use the tax code to create disadvantages for specific industries.

For instance, over the last several years the oil and gas industry has been targeted for unequal tax treatment. The Obama administration and allies in Congress have attempted to single-out energy companies by eliminating certain credits and deductions that are standard for businesses in every other economic sector.

Such policies run contrary to what most of us consider fair play, but even so they have been very real threats to Montana’s energy industry. And they certainly run contrary to the “clean slate” approach being taken with tax reform.

Nevertheless, it’s important for Sen. Baucus and his tax reform allies to keep a wary eye out for attempts to leverage the new tax code to create favorable tax treatment, or to punish certain industries as a way to pursue a political agenda.

This is a very big task Sen. Baucus has taken on, and he needs to know that Montana is backing him. Go and weigh in with your comments about what you think should be included in the tax reform package at taxreform.gov, and urge Sen. Baucus and his colleagues to keep fairness and simplicity central to the reform package.

Sen. Bruce Tutvedt, R-Kalispell, is the chairman of the Montana Senate Taxation Committee. He serves Senate District 3 in Flathead County.

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  • kurgen99 posted at 12:08 pm on Tue, Dec 31, 2013.

    kurgen99 Posts: 1

    Baucus is risking a permanent real estate crash with his proposal of eliminating 1031 exchanges.

    As a real estate professional, I fear that eliminating the tax rules for 1031 like-kind exchanges could be a catastrophic threat to the real estate market or even bring it to a grinding halt as investors will have a strong disincentive to sell their property, causing property values to plummet.
    The real estate market has been one of the few bright and productive sectors of the economy for at least the last 40 years, and one that continues to produce strong nation wide middle class jobs to brokers, Realtors, escrow officers, mortgage brokers, appraisers, title officers, and construction workers to name a few.
    1031 exchanges have been a valuable tool in providing a strong incentive for real estate investors to reinvest the proceeds of their sales equal to or greater in value. Eliminating this incentive will cause investors not to sell, and will drive the value of property downwards, and the cost of rents, and anything sold by the tenant, up. Not only do many states rely on property tax for revenue (some completely), but Wall Street has been heavily invested in mortgage backed securities and REITS. A downward trend could send both the real estate and equity markets into another crash.
    Eliminating 1031 tax deferred exchanges would not only cause instant job losses to the real estate industry, but could propel us back into another recession

  • Eugene Patrick Devany posted at 6:42 am on Tue, Jul 23, 2013.

    Eugene Patrick Devany Posts: 1

    Over time, the tax code redistributes wealth with high rates that return 7.5% of GDP each year to those who qualify. Tax expenditures (credits, deductions, deferrals, special rates and exemptions) have caused the poorer half of the country to gradually lose 70% of their net wealth between 1995 and 2010. While the poor and lower middle class qualify for a few tax breaks, most benefit only high earners and the businesses which they own. The low net wealth of most of the population has delayed recovery from the Great Recession and could make the next economic downturn much worse.

    The "blank slate" approach to tax reform now urged in the Senate asks representatives to support tax expenditures rather than documenting problem areas and needed reform. It is also a secret process that ignores the regressive and job killing payroll taxes that comprise the worst part of income taxation.

    We need big tax reform that replaces at least the business portion of the payroll taxes with a value added tax. A revenue neutral approach will not raise consumer prices but it will lower the cost of U.S. labor by 8%.

    The charitable deduction discourages jobs in private business by encouraging the transfer of wealth to public charities. It has been so effective that in 2000 the nonprofits had twice the net wealth of half the country and 10 years later they had eight time the wealth of the poor and lower middle class. These universities and hospitals did not provide a fourfold increase in services to the poor and most raised their fees for services. It would be better to limit the $40 billion tax incentive to those charities willing to expand both their services and jobs for U.S. workers.

    Most tax expenditures which are maintained should be means tested or otherwise adjusted by net wealth so that only those with need get the benefit.