Regardless of where you fall in the political spectrum, the results of last month's midterm election showed the American public's general disdain for the group of Congress currently in power. And, while I don't have an overwhelming sense of joy or sadness over who specifically won or lost, I am excited that both the House and the Senate will be controlled by the same party which will hopefully lead to many accomplishments over the next few years. With that in mind, here are three suggestions of tax issues that Congress should work on while they have the majority.
Depreciation
Depreciation is a complicated topic for most businesses because, under normal circumstances, for every dollar they spend on improving their facilities or buying new machinery and equipment, they only receive tax benefit for a fraction of that dollar. Although taxpayers might not decide to buy or not to buy capital assets because of tax depreciation rules, if taxpayers are rewarded with higher deductions in the year of purchase then they feel they are getting more benefit from that purchase. So Congress should bring back at least 50% Bonus depreciation, and they should make this a permanent rule so that taxpayers don't have to wait until the end of the year to see if Congress will extend the law again. It is incredibly difficult for businesses to plan when they don't know the law at the beginning of the year.
The Middle Class
Between the PEP and Pease, additional required Medicare withholding, and Net Investment Income Tax, there are some taxpayers technically in the "middle class" that are getting absolutely demolished from a tax perspective. By the time you take away 20% of their itemized deductions, all of their personal exemptions, and another 3.8% of taxes for Medicare, effective tax rates for those in the middle class rocketed upward in 2013. Now, a married couple with 3 children that jointly makes $350,000/yr might seem rich, but after taxes and tuition that $350,000 doesn't go as far as one would think. These are the people managing America's businesses, funding college educations, and helping build a brighter future for our country. Let's give them a break and at least let them keep a little more of their deductions and personal exemptions.
Corporate Inversions
Figure out why companies are moving overseas. America has to find a common ground with its companies in order to continue to grow and prosper. Kudos to the companies that have found a way to pay zero tax, but come on, in reality to conduct business in the USA will cost something. Meet with business leaders and find a common ground, a way for the Treasury and the business to both benefit.
Thank you Congress, and good luck. Hopefully you will have several accomplishments over the next 2 years that will make the Americans that voted you in proud of your efforts.