The U.S. tax law was originally (and briefly) designed to raise tax receipts from a small, yet wealthy portion of the U.S. population. However, as with all good things, the Federal government turned the tax code into not only a tax receipts source, but as a way to shape and force public policy and public behavior. The U.S. tax code has grown from a few pages of tax laws into something known as Title 26 of the U.S. Code. This Title 26 was originally encompassed into something called the Internal Revenue Code (IRC). The IRC, over approximately the last 100 years, has mushroomed into a giant document with several thousand pages. It covers all aspects of our lives and tries to control or tax or both much of our daily lives. From taxes on what we drink (i.e. excise taxes on alcohol) to taxes on what we earn (i.e. corporate and individual income tax rates) This document and its related and equally complex accompanying regulations, Revenue Rulings, Revenue Procedure and a variety of Court cases has negatively affect our lives for so long a period, that no one can remember a time when anyone did some major action without first consulting their attorney or accountant to find out what tax laws they would encounter.
Politicians form the beginning, have been loath to change any tax law once in place, because by eliminating a law it is very hard to get it put back into law at some future point in time. Also, when a portion of any tax law is changed, there are winners and losers. The losers who have the most to lose usually have enough money to hire the right people to prevent the Congress from changing a law that negatively affects the original potential loser. Changing the tax law has long become the common example of the rule of unintended consequenses. For example, to eliminate a deduction such as home mortgage interest, it has been said that by doing so would put the entire home real estate market into a tailspin worse than the one we saw in 2008. The logic is that people will pay a price for a home greater than they can actually afford, if they can get a tax deduction for the interest piad, thus saving them tax dollars to be paid. With no deduction available, home prices would collapse by virtue of it being no longer "tax smart" to own a home.
During this recent Presidential campaign, I took the time to review the tax plan as set forth by the Trump campaign. In it I found the general outline of numerous tax policies that a business person would write. By that I mean, instead of some legalease or gobledegoop, I saw a few things which were straightforward and easy to understand.
The first would affect individual taxpayers by turning the laborious process of calculating one's tax based either on some schedule or table, into calculating one's tax by the use of one of three straightforward tax rates. Simplicity and fairness. The next thing I noted was the elimination of certain deductions from the itemized deduction section of the tax code. Essentially, the only two items which would be tax deductible as itemized deductions and those would be charitable contributions and home mortgage interest.
The last of my observations, and probably the one with the potential for the greatest impact on all of our lives, would be a special 15% tax on earnings brought back into the U.S. by companies who have earned those profits overseas. Generally speaking, if a large company were to repatriate those earnings under present tax law, those profits would be taxed at the highest U.S. tax rate of 35%. Considering that there are trillions of dollars waiting to come back to the U.S., a one-time, short-term tax such as this one would save U.S. companies hugh amounts of cash that would be mandated for investment here in the U.S. should a company decide to bring this money back to the U.S.
As the new President-elect hasn't even been sworn into office yet, we will have to wait and see what the final tax law changes are going to be, but if campaign promises are to mean anything, we can expect that a new tax law will be up on Capital hill in the late spring of 2017.