The process that the Republicans used to write this tax bill was both extremely corrupt, and very hurried. Those are two glaring red flags. The bottom line is we really don’t have a good idea how much this slapped together tax bull will cost , but we do know the Republicans aren’t using realistic estimates for the costs of this bill.
The Games They Will Play: Tax Games, Roadblocks, and Glitches Under the New Legislation pdf
The tax legislation now before Congress was written quickly, leaving legislators and the public little time to analyze its provisions—many of which are highly complex. Tax lawyers and accountants are already preparing to exploit ambiguous and poorly drafted provisions in the bill.Because of these tax-planning opportunities, it is likely that the actual cost of this legislation will exceed the current projections of over $1 trillion.
Congress should immediately reconsider its approach. Put simply, these bills are right now riddled with problems and, especially in light of likely future gridlock in Washington, it is very important to get this right the first time.
II. Tax Games, Roadblocks, and Glitches
6A. Using Corporations as Tax Shelters
6B. Pass-Through Eligibility Games
9C. Restructuring State and Local Taxes (SALT) to Maintain Deductibility
12D. International Games, Roadblocks, and Glitches
14E. Arbitrage Money Machines: Gaming the Rates Differentials on Business Income
17F. Other Glitches, Some of Which Would Haphazardly Penalize Taxpayers
Law Professors Just Published a Delightful, 34-Page List of Ways People Will Game the GOP Tax Plan
Because they were rushed through Congress at lightning speed and with barely more editing than your average blog post, the Republican tax bills are turning out to be full of kinks. Some of these mistakes—like the $289 billion tax hike on corporations senators accidentally wrote into their law at the last minute—have been widely covered. But many others are just being discovered. “The more you read, the more you go, ‘Holy crap, what’s this?’” Greg Jenner, a former top tax official in George W. Bush’s Treasury Department, told Politico this week. “We will be dealing with unintended consequences for months to come because the bill is moving too fast.”
Today, a group of 13 tax law professors and lawyers, many of whom have been vocal opponents of the Republican plan, published a 34-page paper offering a taste of what those unintended consequences might be. You know how people have been joking about incorporating themselves ever since these tax bills started kicking around? That’s almost certainly going to be a thing. Investors may be able to shelter their investment profits by stuffing them into C-Corporations, which are in line for a low, 20 percent tax rate. Many individuals could save on their income taxes by gaming proposed tax breaks for passthrough businesses—firms like partnerships and LLCs that aren’t subject to the corporate rate. Baseball players will probably start separate companies to collect all of their endorsement and licensing royalties while saving on taxes. A law firm could split itself into multiple pieces in order to minimize its associates’ IRS bills.
Some of the issues the professors found aren’t loopholes so much as unintentionally perverse incentives that could, for instance, encourage companies to shift employment and investment overseas (which is the exact opposite of what this bill is supposedly intended to do).
First, as the paper’s authors note, all of these loopholes suggest that the GOP’s tax plans will cost far more than the Joint Committee on Taxation has officially projected. The JCT appears to think that the bill’s anti-abuse provisions are good enough to keep revenue from leaking out. Given what we’re learning, that is probably a fanciful assumption.
I remember back after the Reagan Tax Cuts I as an individual was paying more Federal Income Taxes than my large corporate employer was (zero).