In December 1976, I graduated from college and accepted a position as a tax accountant in a CPA firm.
Thus, began my four-decade odyssey through the nuances and intricacies of tax laws. It has been a long strange trip with many twists and turns.
At times, I have been both bemused and bewildered by the process of passing tax legislation. In many ways, it reminded me of my night job in college. I worked in the sausage department of a meat packing plant. I can confirm: your appetite is not enhanced by witnessing the process.
Given the complexities of our economy, it should come as no surprise that tax laws change. When I began my practice, CCH Master Tax, the definitive guide to tax legislation, was 560 pages long. By 2017, it had grown to 1,008 pages.
This growth is the result of an onslaught of new tax legislation. Since 1977, there have been 58 major pieces of tax law enacted. This is an average of 14.5 per decade. It is no wonder the average taxpayer feels handicapped when attempting to understand tax laws. I have witnessed first-hand, trained professionals scratching their heads trying to decode byzantine tax rules.
That said, we have been historically supported by a coherent legislative process. It went like this:
• Legislation proposed
• Professionals and industry comments
• Open hearings
• Further debate and modifications
• Final passage (with adequate time for the IRS and professionals to adjust to new rules and guidelines)
Simply put: The carpenter adage of measure twice, cut once was employed.
The goal was to bring together all the information necessary to consider the consequences, both intended and unintended. By allowing adequate time in the review process, it was hoped the final law would reflect a consensus among all affected parties.
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Unfortunately, that was not the process with the Tax Cuts and Jobs Act. The legislation passed on Dec. 20 without any open debate. It is now in effect. This is unprecedented in the history of significant tax law changes.
While much can be said about the process (or lack thereof), we will soon be living with the full impact of this bill.
The full legislation is just seeing the light of day. This bill will significantly affect personal, investment and business decisions. The limitations put in place and the doubling of the standard deduction will have a long-lasting impact on how people view charitable contributions, as well as interest and taxes on their personal residence. The elimination of home equity loans takes away the opportunity to deduct interest on these disguised personal loans.
There are some big positives such as lower corporate and individual rates, elimination of AMT for corporations and the majority of individuals, and a significant increase in the amount of write-offs for equipment purchases for all businesses.
This tax bill gets even more exciting for individual taxpayers in the future. It disappears in eight years! That’s right. Most of the favorable individual tax breaks are gone after 2025.
What will not disappear is the projected $1.5 trillion addition to the national debt caused by this bill. Many of us remember Ronald Reagan’s illustration of $1 trillion being the equivalent of a stack of $1,000 bills that was 67 miles high. Using this comparison, the debt which is projected to be created by this bill will be over 100 miles high!
As a former runner, I have some appreciation for that distance. However, my preference is to look in terms of Gross Domestic Product or the output of all goods and services. Using this benchmark, $1.5 trillion is equivalent to 5 percent of the world’s GDP. As my uncle Ernie used to say: “that’s a lot of cabbage.”
As we look at the future impact of this tax bill, keep in mind we are not done. Significant tax legislation like this delivered in a seven-week period will certainly be subject to adjustments.
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This may create indigestion for those trying to follow the laws as well as sleepless nights for accountants. I can only imagine the number of pages in the next edition of CCH’s Master Tax Guide.
• Tim Terry founded the accounting firm of Terry, Lockridge & Dunn in 1978, the investment bank TLD, Inc., in 1980, and World Trend Financial in 1992