I wrote the article below for some journal in Wall Street on February 7, 2017. When there was a lot of talk about tax reform with the incoming administration. Since I am busting my butt in Greece cleaning out the family home and making other arrangements revolving the next stage of my mother’s life, meaning my time is very short, I decided to dig this up and then give each wish I listed a grade. Hope you like it. If not, complain to management for a refund lol.
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I started my 25-year career in the financial industry as a tax accountant before I transitioned to a fee-only fiduciary adviser in 1999. During these years, I’ve seen a lot of what goes on in the financial sector.
So as the new administration prepares to make changes on the tax and other financial fronts, here’s my wish list. They are changes that I think would benefit consumers–and, admittedly, my industry.
1. Repeal the alternative minimum tax. This legislation was a knee-jerk reaction by an embarrassed government in 1969 when it became public knowledge that 155 tax filers with an annual income of $200,000 were legally paying $0 in federal income tax.
While President Ronald Reagan’s 1986 tax reforms eliminated most of the deductions that allowed this to happen, the AMT is still around 48 years after it began. Now it catches mostly middle class families instead of super-wealthy individuals. That’s because the level of income that triggers the AMT hasn’t been adjusted to today’s income levels—in fact, $200,000 in 1969 is equivalent to an annual income of more than $1.3 million in today’s dollars.
Grade B: The changes have almost eliminated the AMT for individuals. It would now apply to very limited occasions. This past year with the new tax law none of my clients were hit with the AMT tax and I expect this to continue. I would have loved to see it eliminated completely but you can’t have everything. And…the corporate AMT was left intact, boo! And this is why this grade went to a B and not an A.
2. Simplify and reduce taxes. Why stop at the AMT? Let’s go for real tax reform. The U.S. tax system is ridiculously and unnecessarily complex.
The federal tax code has 2.4 million words, up six-fold from 409,000 words in 1955, according to the Tax Foundation. Americans will spend 8.9 billion hours and $409 billion complying with IRS tax filing requirements this year.
President Reagan reduced the highest federal income tax rate from 50% to 28%, but that didn’t last long. It’s now up to 39.6%.
Meanwhile, American corporations face the highest tax rates in the world. The U.S corporate tax rate is 35%, whereas the global average is 25%. The tax rate has barely changed since 1986 and since then, other countries have cut their rates aggressively. The U.S. rate is two to three times higher than its direct competitors, like the U.K. (20%), and Ireland (12.5%).
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