Background on Tax Reform

Tax Reform topics in the 2020 election cycle:

Top One Percent
• Top 1% of world: More than 19 million Americans are in the 1% worldwide, Credit Suisse reports, far more than from any other country. (CNBC)
• Top 1% in America: Nationwide, it takes an annual income of $538,926 to be among the top 1%. Approximately 1.4 million taxpayers meet this threshold. [That top 1% threshold compares to] the average income of $82,535 among all taxpayers (USA Today).

• TRUMP: FactCheck: Proposed 14% tax on wealthy in 2000, but not now (Sep 2015)
• BIDEN: FactCheck: tax hike on top 1%, not on all American families (Aug 2020)
• PENCE: Voted YES on making the Bush tax cuts permanent (Apr 2002)
• HARRIS: We won't raise taxes on anyone earning less than $400,000 (Oct 2020)

Marginal Tax Rates
• 2018 tax rate changes: The current marginal tax rates went into effect as of 2018, with the passage of the Tax Cuts and Jobs Act (Investopedia):
  

  Previous law tax brackets	2018 law tax brackets	Married income maximum for tax bracket
  10%	10%	$0
  15%	12%	$19,750
  25%	22%	$80,250
  28%	24%	$171,050
  33%	32%	$326,600
  35%	35%	$414,700
  39.6%	37%	$622,050

• TRUMP: FactCheck: claimed "killed" by tax bill but gained millions (Jun 2019)
• BIDEN: Return top rate to 39.6% from 37%; cap itemized deductions (Sep 2020)
• PENCE: Lower taxes across the board, and we'll get growth (Oct 2016)
• HARRIS: Tax relief for middle class; repeal 2017 tax cuts (May 2019)

Tax Audit
• IRS audits: An IRS audit is an examination or review of your information and accounts to ensure you're reporting things correctly and following the tax laws. (NerdWallet)
• Trump IRS audit: Since he first launched a run for the White House in 2016, Trump has declined to release his tax returns. One reason he commonly cites as to why he can’t is that he is undergoing an audit. Trump cited his lawyers as advising him not to release his tax returns, since doing so could complicate a possible deal with the agency. (Market Watch)
• President Nixon tax audit: There's nothing preventing Trump from releasing his tax returns now. Not the IRS, not the law, not even precedent. Turns out Richard Nixon publicly released his tax returns while they were under audit in 1973, at the height of the Watergate investigation. While not required by law, full tax return disclosures have come to be expected of presidential nominees as well as every sitting president, audit or no. (CNN Money)

• TRUMP: OpEd: Can't release tax returns while under audit? Nixon did (Oct 2016)
• Bill WELD: I am releasing my returns and Trump should release his (Oct 2016)
• HARRIS: Americans deserve transparency on president's taxes (Oct 2020))
• TRUMP: I pay millions of dollars in income taxes, not $750 (Sep 2020)

• 2017 Tax Simplification: The Tax Cuts and Jobs Act of 2017 made several significant changes. The Internal Revenue Service estimates the average time to complete an individual tax return will decrease by 4 to 7%. Converting this to dollar terms, we estimate compliance savings could range from $3.1 billion to $5.4 billion. (Tax Foundation)
• PRO-Tax Simplification: The idea of simplifying the U.S. tax code is perennially appealing. Yet proposals to simplify the tax code often promise more than they can deliver, by dramatically changing the balance of who pays taxes or significantly reducing tax receipts needed to fund government services. [Ed.: See marginal tax rate changes above; the 2017 tax simplification was really a generalized tax cut; "tax simplification" has come to be a euphemism for "tax cuts."]. (CAP)
• ANTI-Tax Simplification: Proponents of tax simplification have bandied about the idea for a postcard-type 1040 for years. It came closer to fruition when the Tax Cuts and Jobs Act was enacted. Supporters, including the Trump administration, bragged that taxpayers would be able to file a return on a single small sheet of paper. Despite the changes, the IRS still requires more information than what can be entered on just a few lines. (CPA)

• TRUMP: People want tax cuts; don't understand tax reform (Feb 2018)
• BIDEN: Voted NO on $350 billion in tax breaks over 11 years (May 2003)
• PENCE: Simplify the tax code (Jan 2015)

Estate Tax
• PRO-Estate Tax: The top 10 percent of income earners pays more than 90 percent of the tax, with nearly 40 percent paid by the richest 0.1 percent. Few farms or family businesses pay the tax. [Ed.: In 2018, the estate tax applied to 4,020 tax returns, of which 3,530 tax returns were from the top 10 percent of income earners. That compares to a total of 154,000,000 tax returns filed.] (Brookings)

• TRUMP: Estate tax is unfair double taxation (Oct 2015)
• BIDEN: Voted NO on raising the Death Tax exemption to $5M from $1M (Feb 2008)
• PENCE: Voted YES on eliminating the Estate Tax ("death tax") (Apr 2001)
• NEWS: Latest statements on Estate Tax from presidential candidates and political pundits

• ‘Marginal Tax Rates’ means the amount you pay on each taxable dollar earned above the deductible base.
  (Decreasing the marginal rates would decrease the amount everyone pays, but in general would favor those who pay more tax).
• The current marginal tax rates are 15% on the first $42,350 of taxable income, 28% on the next $60,000, and 31%, 36%, & 39.6% above that.
  (Those are the ‘Married Filing Jointly’ rates. The same marginal rates apply to singles, but at different breakpoints).
• The ‘Marriage Penalty’ means that two people filing taxes together pay more than if they filed as two singles separately. This situation has existed in the tax code since 1969, when the tax code was reformed to account for women entering the workplace. The bill referenced above became law in June 2001 as the “Marriage Penalty and Family Tax Relief Act.” It changed tax deductions and child credits to remove that aspect of the ‘Marriage Penalty,’ but did not address the core distinction that a couple filing jointly still pay more than the same couple filing separately.
• The most common deduction is the mortgage interest deduction (applicable to everyone who owns a house; it makes buying a home more affordable by subsidizing 15% of the mortgage).
• The charitable deduction is the basis for discussions of ‘Faith-based organizations’ replacing government agencies (see Welfare section)
• The 'Estate Tax' or 'Inheritance Tax' is called the 'Death Tax' by its opponents, beginning in 2001 under President Bush. While polls indicate broad support for eliminating the estate tax, few Americans are directly affected by it. Opponents point out that some family businesses would have to sold to pay the estate tax. In 2001, 98% of descendants avoid taxes altogether because the first $675,000 of an estate was exempt from taxation. That exemption rose to $5 million in 2011-2012, with a one-year repeal in 2010, and is slated to return to $1 million in 2013. According to the Internal Revenue Service, about 3,000 estates are worth more than $5 million each and hence would be subject to the tax in 2011-2012.
• The ‘Capital Gains Tax’ is a separate income tax (with a marginal rate of 20%) which applies when goods that have gone up in value are sold. Lowering the capital gains rate is considered a benefit to wealthier taxpayers. (More on Capital Gains in Corporate Backgrounder).

• A 'progressive tax system' means wealthier tax payers have a higher tax rate than lower-earning taxpayers. In contrast, the 'FairTax,' which would replace the current progressive marginal rates with a single 'flat' rate (plans vary from 10% to 17%), applied after a deductible base. Flat Tax plans can achieve lower rates by removing the mortgage interest and charitable deductions.
• A ‘Flat Tax’ or ‘FairTax’ would replace the current progressive marginal rates with a single ‘flat’ rate (plans vary from 10% to 17%), applied after a deductible base.
• Flat Tax plans can achieve lower rates by removing the mortgage interest and charitable deductions.
• A ‘National Sales Tax’ would replace the income tax with a consumption tax paid when purchasing anything. Many European countries implement a form of sales tax called ‘VAT’, or Value-Added Tax.

• The 'AMT' or 'Alternative Minimum Tax' is intended to ensure that high-income earners pay a reasonable tax rate, by imposing a minimum tax rate above a high-income threshold. Since 2013, the minimum rate is 26% for income above $323,000. Prior to the 2012 reforms, the income cutoff was $51,900, which included many middle-class earners.
• Buffett Rule: The current proposal for a new AMT is known as 'the Buffett Rule,' and proposes a minimum rate of 30% for income above $1,000,000. The Buffett Rule is named after Warren Buffett, a billionaire who pointed out that his own marginal tax rate was lower than that of his secretary.
• NEWS: Latest statements on Flat Tax from presidential candidates and political pundits

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. (1913)

Click for Amazon books on Tax Reform: The Benefit and The Burden Corporate Tax Reform FairTax Click for references and citations on Tax Reform: CNBC, "How much money you need to be part of the 1 percent worldwide," by Kathleen Elkins, Nov 1 2018 USA Today, "How much do you need to make to be in the top 1% in every state?," by Samuel Stebbins and Evan Comen, July 1, 2020 Investopedia, "Marginal Tax Rate Definition," by Alicia Tuovila, May 5, 2020 NerdWallet, "7 Reasons the IRS Will Audit You," October 7, 2020 Market Watch, "Trump has faced a decade-long tax audit," by Jacob Passy, Oct. 24, 2020 CNN Money, "Nixon released his tax returns under audit. Why can't Trump?," by Jeanne Sahadi, May 11, 2016 Tax Foundation, "The Tax Cuts and Jobs Act Simplified the Tax Filing Process for Millions of Households," by Erica York & Alex Muresianu, August 7, 2018 Center for American Progress, "Tax Simplification That Works for Everyone," by Alexandra Thornton, September 22, 2016 CPA Practice Advisor, "IRS Cancels Postcard-Sized Income Tax Return," by Ken Berry, JD, CPA, Aug 4, 2019 Brookings Institute, "Tax Policy Center Briefing Book: Key Elements of the U.S. Tax System," downloaded Oct. 2020

Other candidates on Tax Reform:	Background on other issues:
2020 Presidential Democratic Primary Candidates: V.P.Joe Biden (D-DE) Mayor Mike Bloomberg (I-NYC) Mayor Pete Buttigieg (D-IN) Sen.Cory Booker (D-NJ) Secy.Julian Castro (D-TX) Rep.John Delaney (D-MD) Rep.Tulsi Gabbard (D-HI) Sen.Amy Klobuchar (D-MN) Gov.Deval Patrick (D-MA) Sen.Bernie Sanders (I-VT) CEO Tom Steyer (D-CA) Sen.Elizabeth Warren (D-MA) 2020 GOP and Independent Candidates: CEO Don Blankenship (C-WV) Gov.Larry Hogan (R-MD) Gov.John Kasich (R-OH) V.P.Mike Pence (R-IN) Gov.Mark Sanford (R-SC) CEO Howard Schultz (I-WA) Pres.Donald Trump (R-NY) Gov.Jesse Ventura (I-MN) V.C.Arvin Vohra (L-MD) Rep.Joe Walsh (R-IL) Gov.Bill Weld (L-MA) 2020 Withdrawn Democratic Candidates: State Rep.Stacey Abrams (D-GA) Sen.Kirsten Gillibrand (D-NY) Sen.Kamala Harris (D-CA) Gov.John Hickenlooper (D-CO) Gov.Jay Inslee (D-WA) Mayor Wayne Messam (D-FL) Rep.Seth Moulton (D-MA) Rep.Beto O`Rourke (D-TX) Adm.Joe Sestak (D-PA) Rep.Eric Swalwell (D-CA)	Abortion Budget/Economy Civil Rights Corporations Crime Drugs Education Energy/Oil Environment Families Foreign Policy Free Trade Govt. Reform Gun Control Health Care Homeland_Security Immigration Jobs Principles Social Security Tax Reform Technology War & Peace Welfare