Tax Roundup, 3/18/2013: Is Iowa’s mental health really a tax problem? And more on pass-through reform!

March 18th, 2013 by Joe Kristan

 

20130318-2Ah, the tax law.  Is there anything it can’t do?  An Iowa legislator thinks that it might be just the thing to get Iowa the psychiatric care it really really needs.  From the Dubuque Times-Herald:

Republican Rep. Dave Heaton’s bill was reviewed by the House Ways and Means Committee last week. It would waive state income taxes for psychiatrists with school debt who choose to practice in areas of Iowa that are medically underserved.

“We don’t have enough psychiatrists in this state,” the Mount Pleasant lawmaker said. “We’re desperate. … We just don’t have the infrastructure to deal with the influx of people who will be seeking mental health services.”

I’m no mental health professional, but I think that adding one more special interest break to Iowa’s already byzantine tax law might cause more mental health problems than it solves.  Or maybe this bill is really a cry for help.

 

The two houses of the Iowa legislature, controlled by different parties, head away from each other on tax policy.  The House Republicans have passed the Alternative Maximum Tax optional flat tax, while the Senate Democrats have advanced an increase in the earned income credit.  Omaha.com reports:

Republicans said they want to provide tax cuts to more people than the Democrats would. Democrats said the Republican plan provides bigger breaks to top earners and does little for the needy and low-income people.

The two proposals were so different that Republican Gov. Terry Branstad described them as “two ships passing in the night.”

If you focus only on the tax side, you miss much of the picture.  While low-income taxpayers may not get much help from tax breaks, because they don’t pay much tax, they generally receive benefits well in excess of the taxes they do pay.

20130318-1

 

Martin Sullivan, Dave Camp’s Quiet Revolution, (Tax Analysts via The TaxProf).  He discusses the proposals announced last week for merging the treatment of partnerships and S corporations:

  Under the new passthrough regime, there would be no limit on the number of owners (currently 100 for S corporations). However, businesses whose shares are publicly traded would not qualify. Foreign ownership would be allowed (unlike under subchapter S). But in a striking change, there would be withholding at the entity level with a credit provided for owner taxes.

     Even more startling is that under the new regime, the ability to allocate gains, losses, credits, and other tax attributes among owners will be significantly restricted compared with current law rules for partnerships (although the new rules would be relaxed relative to current subchapter S rules that require uniform allocation). As a simple-minded economist, I have always wondered why Congress granted partnerships so much discretion. Rather than simply being a flow-through entity in which business shares are the alter ego of the owners, partnerships are vehicles for tax avoidance

In another (gated) article, Tax Notes today also discusses reactions to the reform proposals:

 But what’s troubling practitioners is the way that Camp’s Option 2 attacks some of the most fundamental subchapter K principles. It would not only largely end the ability of passthroughs to make special allocations, but it would also tax the distribution of appreciated property by a partnership.

I wouldn’t miss special allocations, but I really dislike taxing appreciation of partnership property distributions.  It would make partnership transaction planning as difficult and dangerous as corporation transaction work — and I don’t see an offsetting benefit. If simplification is the goal, it seems wiser to extend the carry0ver basis rules of Subchapter K to S corporations.

Kay Bell, 4 tax tips for independent contractors

TaxGrrrl, Taxes From A To Z (2013): I Is For IRA Rollover

Peter Reilly, Written Business Plan Is Crucial In Horse Tax Court Case . A Minnesota accountant comes this close to winning deductions for his horse operation.

Elizabeth Mann, Joseph Henchman, Kansas May Face Budget Problems as Senate Again Strips Tax Reform Out of Tax Cut Bill:

The eventual goal for Gov. Brownback and for many legislators is to completely phase-out the individual income tax. I’d feel a lot more comfortable if there was a good game plan on how to do it—whether that involves spending cuts or replacement revenue.

(Tax Policy Blog)

 

Joseph Thorndike, America May Be on the Wrong Track, But Is Paul Ryan’s the Right One? (Tax.com)

Howard Gleckman, House GOP Would Need $5.7 Trillion in Tax Hikes to Offset Ryan Rate Cuts (TaxVox)

Chris Sanchirico,  “Common Sense” Aside, What Do We Really Know About Capital Income Taxes and Growth? (TaxV0x)

 

Pro Tip:  Saying You’ve Never Paid Taxes in your Life on National TV After Earning Lots of Money Isn’t Brilliant  (Russ Fox)

The muskrats, in contrast, made out like bandits at the blackjack table.  Casino: Beavers Lost $500,000 on Slot Machines (NBCChicago.com)

 

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