Tax Simplification Research Articles

Written Statement Hearings on H.R. 5270. The Foreign Income Tax Rationalization and Simplification Act of 1992

Written Statement Hearings on H.R. 5270. The Foreign Income Tax Rationalization and Simplification Act of 1992

Tax Reform in Developing Countries.

This volume presents the work of experts (in most cases the very advisers who designed and helped implement the reforms) on the tax reform efforts of a dozen developing nations-from the restructuring of the economy of postwar Japan to the 1986 reforms in Jamaica. Among the many lessons learned from these efforts are that tax reform is most successful when tax administration is a central (rather than peripheral) focus of reform efforts, and when tax reform is specifically directed toward economic rather than noneconomic objectives. Other conclusions include the apparently mutually reinforcing nature of tax simplification and tax rate reduction, and the role of indirect tax reforms (such as the value-added tax) in successful reform undertakings.

Distortionary Impacts of the 1982 and 1986 U.S. Tax Codes on Capital Investments: A Case Study of Investment in Orange Groves

AbstractThe 1980s have been a period of dramatic change for the income tax code in the United States. Although numerous modifications were considered in policy deliberations, two key goals, the reduction of the importance of tax considerations in investment decisions and tax simplification, emerged from the discussion and guided drafting of the 1986 Tax Reform Act. This study examines the importance of tax considerations in investment decisions under the provisions of the Tax Reform Act of 1986 and its predecessor, the Tax Equity and Fiscal Responsibility Act of 1982. The study then compares the tax liability under these tax codes with a nondistortionary tax scheme. Results indicate that the Tax Reform Act of 1986 reduced the distortionary effects of the tax code on capital investment decisions. However, a large portion of the reduction can be attributed to the change in the average tax rate.

Economic Consequences of Tax Simplifications

Economic Consequences of Tax Simplifications

Congressional Arts Caucus Legislative Summary 99th Congress

Abstract The following legislative summary is an unusual choice for the journal to print, but we feel it summarizes a number of disparate and important facts that our readers might value in a single source. Like a previous report of the Institute of Museum Services some issues ago, this summary is more an internal document than an article in the traditional sense. We feel it could use a broader dissemination. Of particular interest are the changes in legislation for the Arts and Humanities Reauthorization FY 1986–1990 since they reflect policy-related decisions that are perhaps a microcosm of some of the major issues emerging during the twenty-year history of our National Endowments for the Arts and Humanities. These changes also reflect problems that practitioners—in particular, arts managers—will be dealing with on a daily basis and in very specific terms over the next half decade. These include access to the arts and humanities for those people in rural areas and in underrepresented groups, greater restrictions for those who sit in judgment on their peers, either on the National Council or as panelists, and a mandate for stronger reporting procedures both before and after grant awards. The summary of the 1986 Tax Reform Act Provides a quick review of a Subject that is already emotionally chrged, especially since, in the name of “tax simplification,” confusion seems to have increased in the minds of all but a few seers and interpreters. The public laws section and the list of pending legislation will give the reader a broad view of the kinds of advocacy concerns the arts community can rally around. From the National Anthem to copyright to issue of violence on television, the Congressional Arts Caucus has provided us with an important overview of legislation in the field.

The Impact of Tax Simplification on Mortgate Buyouts

Whenever current mortgage rates are substantially higher than previous levels, mortgage lenders may find it attractive to extend to the borrowers a special opportunity to prepay all or part of the mortgages. The purpose of this paper is to identify the important issues in the buy‐out decision, analyze how buy‐back proposals might work using representative mortgages dating back to 1961, and to evaluate how current tax reform proposals will affect the buy‐out process. The empirical analysis demonstrates that only the lenders in the highest tax brackets would find such buy‐out programs profitable, while it is the borrowers in the lowest brackets that would find buy‐outs most attractive. The lack of lenders with high marginal tax rates and the lack of wealth by borrowers with low marginal rates suggests why such buy‐out programs have not been popular in recent years. The analysis of several recently proposed tax plans indicates that buy‐out programs should become more popular in the future, especially at such times as mortgage rates begin to climb again.

Tax simplification and the performance of the U.S. economy

In this paper we estimate the long run macroeconomic and interindustry effects of the tax simplification proposals as outlined in The President's Tax Proposal to the Congress for Fairness, Growth and Simplicity. We present two scenarios—Traditional and Supply Side—which incorporate alternative views of the effect of tax changes on aggregate savings. Our conclusions are that (1) in the long run, the cost of capital may be higher or lower depending upon the inflation rate; (2) the macro effects are extremely small under both the Traditional and Supply Side scenarios; (3) there will be substantial interindustry effects.

Capital Gains Exemption And Minimum Tax - Mixed Signals From Ottawa

Abstract The "tax simplification" bandwagon which Ottawa seemed to favour in recent years has suffered a setback. Two significant tax measures tabled by the Minister of Finance in 1985 are clearly contrary to any previous notification from Ottawa that Simplification of the income tax legislaion was acknowledged to be a desirable objective. The legislation to implement the $500.000 capital gains exemption and the minimum tax rules may serve to satisfy political and other whims, but arguably accomplish little else, except to unnecessarily complicate this country's income tax law. Introduction The Federal government recently released a number of documents outlining proposed changes to the Income Tax Act. First, on November 26, Bill C-84, the legislation to implement most of the changes announced in the May budget, was introduced in Parliament. At the same time related draft regulations were released. This was followed, on December 2 by a Notice of Ways and Means Motion proposing certain changes in the taxation of flow through shares. On December 4 the government released its minimum personal income tax proposals. Certain anti-avoidance provisions dealing with the wind-up of partnerships and pension fund investments were also outlined at that time. The changes of broadest interest are the $500,000 capital gains exemption, and the imposition of a minimum income tax. The capital gains exemption will be available to Canadian resident individuals for 1985 and subsequent years in the amounts originally proposed. However, a number of complex anti-avoidance rules are proposed in an attempt to ensure that the exemption is not abused. The minimum tax provisions impose an alternate tax of about 25% on income computed using a modified definition which eliminates a number of the deductions, exemptions and tax credits currently available. Individuals and trusts would pay the greater of the minimum tax and the regular tax. The new legislation is lengthy and complex and will profoundly affect the future tax planning of Canadians. Many traditional methods of personal income tax minimization will no longer be possible or effective. The rules of the game have changed and future planning should be undertaken cautiously. Capital Gains Exemption As proposed in the budget, net capital gains realized by individuals resident in Canada throughout the taxation year will be exempt up to a lifetime limit of $500,000 ($250,000 of taxable capital gains). The discretionary deduction in computing taxable income will be phased in as follows: Equation (available in full paper) The deduction generally applies to all capital property owned by Canadian resident individuals, but not by trusts. It will also apply to gains realized in a partnership and generally to gains designated by a trust. Each individual will be required to determine an annual gains limit and a cumulative gains limit to measure entitlement to the exemption. Individuals are required to report all taxable capital gains and claim a deduction for exempt gains in computing taxable income. An individual who fails to report a gain knowingly or under circumstances amounting to gross negligence is denied the subsequent deduction of that gain.

Simplifying Tax Simplification: An Analysis of Its Impact on the Profitability of Capital Investment

* Tax simplification and reform is a concept that is very much a part of the current political climate in the United States. There are currently three tax simplification plans now receiving significant attention in Washington: the Fair Tax Plan sponsored by Senator Bill Bradley and Representative Richard Gephardt, the FAST Tax Plan sponsored by Representative Jack Kemp and Senator Robert Kastens, and the Tax Simplification Plan proposed by the Treasury Department. Three common themes pervade each of these plans. They are that the number of tax brackets should be reduced, marginal tax rates should be lowered on individual and corporate income, and the tax base at both the individual and the corporate level should be broadened. The authors of the plans argue that these changes would make the individual and the corporate income tax systems more equitable and more efficient. While the passage of a full-scale tax reform bill by Congress is by no means certain, it is probably a safe bet that many of the base broadening provisions for the

The Treasury's Proposals for Tax Reform: A Canadian Perspective

The U.S. Treasury Department's proposal entitled Tax Reform for Fairness, Simplicity, and Economic Growth' is bold and exciting and will generate much heated debate. It calls for a greatly broadened income base, for full inclusion of all real capital gains, for comprehensive measures to adjust for inflation, for depreciation allowances to approximate economic depreciation, for the elimination of special tax preferences for specific industries, for partial relief from the double taxation of dividends, for the curtailment of tax shelters, for tax simplification and for substantially reduced personal and corporate tax rates. These proposals are in response to President Reagan's call for basic tax reform. In his State of the Union address, the President said:

Rationalizing Australian Taxation Revisited*

This paper reviews the author's (1971) tax rationalization proposal to examine whether a tax simplification scheme eliminating minor transaction taxes and reducing heavy reliance on personal income tax by introducing a general consumption tax continues to have merit for Australian tax reform. The first part of the paper points to increases in avoidance and evasion as a major change perceivable in Australian taxation between the 1960s and the 1980s and indicates other important changes that have occurred. Section II presents an equity and simplicity case for general indirect consumption taxation supplemented by personal income and wealth taxes. Section III discusses the inter‐governmental financial relations implications of the proposed rationalization. The paper concludes that in the light of events in 1983 such rationalization proposals suitably modified continue to have merit.

Of “Superfluous And Tedious Statutes ”

Abstract Nobody knows better than the petroleum industry that the legislative network confronting the industry is one of Canada's most infamous growth stories, as this country's legislators continue to complicate the income tax and other laws. At some magical point, there is presumably some balance to be struck between legislation which is equitable and unambiguous on the one hand, and at the same time is efficiently complied with and administered. It is becoming increasingly clear that the legislation is not in balance, and that there is a pressing need for some simplification of the income tax rules and regulations —especially in areas of critical importance to the resource industries — even though such simplification will likely involve some sacrifice of equity and certainty. Introduction "I would wish that...the superfluous and tedious statutes were brought into one sum together, and made more plain and short, to the intent that men might better understand them." Edward VI, King of England 1547–1553. Regal decree notwithstanding, the legislation of most developed nations continues to become more complex, lengthy, and confusing than ever before. Canada's income tax system cannot escape the accusatory finger pointing at examples of this serious problem which plagues all of us today. Although many areas of our tax law could easily warrant some degree of simplification, for those who are involved with this country's resource sector, that horrendous, almost unreadable, part of our tax legislation which deals with resource taxation must be regarded as a prime candidate for simplification. In recent decades, but particularly in the past ten years since tax reform in 1972, budget after budget, both federal and provincial, have amended, massaged, modified, and manipulated the resource tax rules to the point where not only are taxpayers totally lost in their attempts to make some sense of the entanglement of rules, but also the draftsmen themselves acknowledge that the outer limits of complexity are being reached, and that the whole set of rules is on the verge of grinding to a groaning halt under its own weight of nonsense and frustration. In fact, the petroleum industry probably suffers considerably more than other industries, in terms of having to deal with complex fiscal regimes. No other industry has to face the multiple perils of the Petroleum and Gas Revenue Tax, the Natural Gas and Gas Liquids Tax, the Incremental Oil Revenue Tax, and the Petroleum Compensation Charge. In addition, each of the producing provinces levies its own production royalties, with rates and bases varying from province to province, and even within a province depending on the type of oil, the age of the discovery, and other factors. The clamor for simplification of the tax system is nothing new, but little, if anything, has been done about it. Why not? The easy answer is that "nothing can be done about tax simplification ". This answer is unacceptable! As this article suggests, something can be done about minimizing the complexities of our income tax legislation.

Tax Simplification through Cumulative Averaging

Complications in the enactment and administration of income tax laws as they generally exist at present arise very largely from the need to answer four types of questions: (x) Is it income? (2) Whose income is it? (3) What kind of income is it? and (4) When is it income? A surprisingly large proportion of the questions that arise and generate involuted legislation and complicated administrative rulings have to do with the last two of these questions, questions which essentially have little to do with the basic philosophy of the income tax, and which fundamentally should be irrelevant to the assessment of a properly designed income tax. The question as to the kind of income that an item represents has to do very largely with the special favors extended to income designated as capital gains. This is not the place to attempt to answer all of the varied and intricate specious arguments advanced in favor of such special treatment.1 Suffice it here to say that the one argument that has some semblance of substance in the context of a general income tax assessed annually at progressive rates, to wit, that gains accumulated over a long period and realized in a single year may subject the taxpayer to unreasonably high bracket rates if no allowance is made, is largely vitiated as soon as there is available an adequate averaging of income, so that the effective rate ultimately depends not on the income of a single year but on the general level of income over a period of several years. The difficulty heretofore with such averaging devices has been that either they were not fully effective in overcoming the disadvantages of lumpy income, or they required extensive record keeping, or fairly elaborate computations, or gave undesirably capricious results in special cases. Cumulative averaging, or perhaps more descriptively, cumulative assessment, is a method of averaging that is at once simple, complete, and free from capricious impacts, and its adoption should completely overcome whatever rational hesitation there may be to the elimination of capital gains as a special category of income, allowing receipts in this form to be treated on the same basis as any other.2 The question as to when an item is income is one that in the long run has little if anything to do with a taxpayer's over-all ability to pay, and in any properly designed tax should be a matter in which neither the taxpayer nor the Treasury should have any substantial interest. The fact that under the present law the timing of income

Tax Simplification and the Tax Reform Act of 1969

Tax Simplification and the Tax Reform Act of 1969

Tax Simplification in This Federal System

Tax Simplification in This Federal System

"Tax Simplification": Grave Threat to the Charitable Contribution Deduction: The Problem and a Proposed Solution

The present National Administration has continued to support proposed legislative changes aimed at substantially reducing the number of income returns in -which deductions are itemized. The author contends that these tax simplification proposals are incompatible with the preservation of the charitable contribution deduction and would undermine the position of voluntary charitable organizations by reducing the incentives for giving. He proposes a solution to this dilemma by promoting the charitable contribution deduction, with certain limitations, to the position of a deduction from gross income, rather than a deduction from adjusted gross income.