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  • 0001. Safe Harbor and Its Potential Impact

    • After the IRS released its controversial set of proposed regulations that would deny a federal level deduction for charitable contributions made in exchange for state and local tax credits, it also released safe harbor guidance for business entities.  Pursuant to the guidance, corporations and pass-through entities that make “quid pro quo” charitable contributions—i.e., charitable contributions in exchange for state and local tax credits—remain able to deduct the value of those contributions under IRC Section 162 as ordinary and necessary business expenses.

      Certain criteria must be met in order for pass-through entities to treat the contributions as ordinary and necessary business expenses, including requirements that the entity must (1) qualify as a business entity that is regarded separately from its owners, (2) operate as a trade or business under IRC Section 162, (3) have state or local taxes imposed directly on the entity in carrying on its trade or business, and (4) apply the state or local credit as an offset to a state or local tax that is not a state or local income tax.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions about the safe harbor and its potential impact.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: This safe harbor is a great way to encourage business entities to continue to make charitable contributions.  Businesses needed the certainty that these clear rules provide, so that even if the state decides to impose an entity-level state and local tax instead of an individual-level tax (like Wisconsin just did), businesses know that their actual tax rate won’t go up because they aren’t limited by the $10,000 SALT cap that limits them at the individual level.

      Bloink: This “safe harbor” discriminates against business entities organized as pass-through entities and needs to be clarified.  All C corporations can deduct contributions made in exchange for state and local tax credits of any kind, to the extent of the amount of the tax credit received.  Pass-through entities have to satisfy several conditions, the most important of which is that the tax credit offered by the state or locality cannot offset state-level income taxes. How many states currently have a program enacted that offers credits to offset some other type of tax?  I’m guessing not many, making this of limited use for pass-through entities, which is how most small businesses are organized.

      ____

      Byrnes: Reducing taxes at the state level is a benefit to business owners, and thus a benefit to the economy as a whole.  The SALT cap was never intended to work at the business level.  The restrictions imposed by the IRS safe harbor are only designed to prevent individuals from taking steps to circumvent the SALT cap by forming tax shelter pass-through entities.

      Bloink: Even if we’re agreeing that reducing taxes is beneficial to the business, and thus an ordinary and necessary business expense…look at the difference between how C corporations and other entities are treated under this rule.  It provides a strange incentive to convert to C corporation status—a move that might otherwise not make sense for small business owners.

      ____

      Byrnes: This guidance is just returning us to the status quo—businesses have always been entitled to unlimited deductions for charitable contributions and ordinary and necessary business expenses.  This isn’t creating any new law, it just looks to close a loophole.  States are free to enact programs that give pass-through entities the opportunity to receive credits against some other tax….property taxes, for example…in exchange for a deduction.

      Bloink:  See, I think this guidance actually encourages inefficient behavior among pass-through entities as they are now encouraged to shift to C corporation status.  It requires entities to undergo yet another cost-benefit analysis taking this safe harbor into consideration, just months after most entities finished the complex task of evaluating how the new tax rules impacted their choice of entity decision.

      ____

      Byrnes: Again, this is just the IRS formally recognizing that reducing state and level taxes is a legitimate business benefit that should be treated as ordinary and necessary.  It’s not discriminatory because C corporations and pass-through entities are taxed differently, and different precautions have to be taken to prevent individuals from using the business to create a tax loophole.  The IRS does not have time to evaluate every case individually, and this provides a comprehensive answer.

      Bloink: The guidance provides unequal treatment on its face.  Either businesses are going to reevaluate their choice of entity decisions, or states are going to have to begin developing legislation and programs designed to help pass-through entities gain equal footing.  It would be much more efficient for the IRS to simply provide equal treatment in the first place.

  • 0002. New Provision Allows Certain Employees to Defer Recognizing Gain on Certain Employer-Issued Stock Options and RSUs

    • The 2017 tax reform legislation created a new provision that allows certain employees to defer recognizing gain on certain employer-issued stock options and restricted stock units (RSUs) for up to five years following issuance.  The new provision contains several important restrictions, including rules that require the employer to issue options with similar features to at least 80 percent of employees and continue to withhold employment-related taxes based on the value of the benefits.  Because many of the details in the law were vague, the IRS has recently released guidance designed to provide clarity for employers who wish to take advantage of the new deferral option.

      The new guidance provides details on both the 80 percent requirement and the employer’s withholding obligations, and requires that the employer create an escrow arrangement in which the stock or RSUs must be held throughout the deferral period.  The guidance has been initially received with mixed opinions, and we asked our Tax Facts authors with opposing political viewpoints to weigh in on the new rules.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: This is one area that tax reform impacted where we really needed additional clarity and guidance from the IRS and Treasury.  Employers have been reluctant to take advantage of the deferral option because of uncertainty, and this guidance is a very positive step in the right direction—the clarity should encourage more employers to take advantage of this tax deferral benefit.

      Bloink: The new guidance created additional problems and complexities for employers who were already on the fence about the strict requirements of the new Section 83(i) deferral option.  Offering stock options to at least 80 percent of employees was already a steep ask for many of the start-up type employers that would benefit most from this new compensation option, and the IRS guidance made this hurdle much more difficult to cross.

      ____

      Byrnes: The guidance provides specific and detailed rules for what employers have to do to satisfy the 80 percent requirement.  The rule isn’t bad just because it isn’t necessarily the easiest to satisfy—and it’s designed to make sure that the deferral option is offered to a broad range of employees within an offering company.

      Bloink: The administrative difficulties imposed by the rules the IRS created make it nearly impossible for smaller, start-up businesses to offer equity grants under Section 83(i). The rules don’t allow the company to look at equity grants made over past years when considering whether the 80 percent requirement is met in any given year.  Imagine companies who are trying to expand, and want to offer grants to all new employees over time—they’d have to offer options to 80 percent of all employees each year, which can be very unattractive for a small start-up.  We’re cutting out exactly the companies that the rule was supposed to benefit.

      ____

      Byrnes: But this rule is designed to protect all employees, not just those higher level executives who got in on the ground floor.

      Bloink:  I agree with Professor Byrnes that the deferral option should encourage equity grants for all employees, but the administrative difficulties of how the 80 percent rule has been interpreted will make it so that only larger private companies can offer these grants.  Additionally, the employer can’t use a single day “snapshot” approach to determining how many employees it has for the year—making it necessary to constantly monitor the number of employees to make sure that the 80 percent requirement is satisfied for the overall one-year period.

      ____

      Byrnes: It shouldn’t be impractical for a company to know how many employees that it has at any given time during the year.  I don’t think that the administrative burdens outweigh the potentially powerful benefits of tax deferral on this one—the new rule transforms these equity grants into an actual benefit for the employee, who may not have had the resources to cover the tax liability the way things stood in the past.  Employers should look to this value when evaluating whether the administrative requirements are worth taking on.

      Bloink: I think that employers will conduct the cost-benefit analysis and determine that the 80 percent requirement makes it administratively impossible to continue to offer equity grants under this new rule in many circumstances.  Maybe they’ll consider it for a single year, but then determine it’s too difficult to continue to offer the benefit to newer employees—considering that each year, 80 percent of employees would have to be offered the benefit if a single new hire is given access in a later year.  The continuous monitoring requirement is just one more piece in the puzzle that I believe will tip the scale against offering the 83(i) deferral benefit.

  • 0003. New SALT Cap, State-Level Initiatives and IRS Response to Possible Workarounds

    • The 2017 tax reform legislation limited the deductibility of state and local level taxes (including income and property taxes) to $10,000, prompting legislators in many high tax states to enact state legislation designed to work around this “SALT cap”.  Some states introduced legislation that would provide state tax credits for certain charitable donations to state-designated charities, which also continue to be deductible at the federal level post-reform.

      In response, the IRS proposed regulations that would negate the benefits of these state programs by denying the federal level tax benefit if the payment at the state level was deemed to be in “exchange” for a state or local tax credit. Most recently, Wisconsin introduced a state-level entity tax, which theoretically could be viable under the proposed regulations because the IRS has clarified that the proposed regulations do not apply to business entities.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions on the new SALT cap, state-level initiatives and IRS response to possible workarounds.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: I’m all for the SALT cap, as well as the limitations imposed by the proposed IRS regulations that are designed to make sure that the SALT cap itself has its designed impact.  We just passed tax reform legislation that gives tax breaks across the board at the federal level, and the SALT cap was designed to offset some of these breaks for the wealthiest taxpayers.

      ____

      Bloink: The problem with Professor Byrnes’ logic is that the SALT cap actually penalizes thousands of taxpayers that are by no means “the wealthiest taxpayers”.  Limiting the federal deduction only penalizes people for where the live and work.  Sure, the federal government has the right to impose their cap whether I agree with it or not, but the IRS regulations curb the states’ rights to control how their citizens are taxed.

      ____

      Byrnes: The regulations limit the states’ ability to circumvent the federal law.  State enactment of programs designed to ensure that their citizens receive both the benefit of the federal deduction and enjoy the benefits of living in a state that collects high taxes—so can provide citizens with the benefits of those taxes—is a form of double dipping.  The SALT cap evens the playing field between low and high tax states—high tax states now have to evaluate their tax systems more carefully because they know their citizens aren’t going to get them all back at the federal level.

      Bloink: States should have the right to enact state level tax credits and charitable giving programs as they see fit.  Lower tax states have every opportunity to tax their citizens at a higher rate so that they can provide the same state-level benefits as high tax states.  It’s not the federal government’s job to enact policies that force the states’ hand in taxing matters.

      ____

      Byrnes: The deduction for state and local taxes is a form of a federal government subsidy for high tax states.  Limiting this subsidy to $10,000 per taxpayer per year levels the playing field so that lower tax states are no longer forced to subsidize higher tax states at the federal level.  It provides equality, not punishment, for taxpayers regardless of where they live.

      Bloink:  I disagree.  The proposed regulations force states to examine tax structures and charitable credits that may have existed well before the SALT cap was even enacted.

      ____

      Byrnes: How else can the IRS make sure the SALT cap achieves its equalizing purpose?  The IRS can’t examine every state program to determine its intended purpose.  Beyond that, Democrats have been denouncing the tax reform legislation because of its impact on the federal deficit—but seem to forget that argument when they look at the cap on the SALT deduction.  This cap offsets some of the costs of these tax cuts, from which everyone benefits, which was necessary to get the legislation passed.

      Bloink: The problem with the cap and regulations is that it offsets some of the cost of tax reform by penalizing middle class taxpayers in high tax states.  The wealthiest taxpayers will just find a workaround of their own—setting up trusts can still provide a viable solution in some cases.  The middle class taxpayers impacted by this cap don’t have the funds to do this, and the IRS regulations impose further restrictions.

  • 0004. Postcard Premiere of IRS Form 1040: Bloink and Byrnes Go Thumb to Thumb

    • The IRS recently released a revised version of the Form 1040, designed to implement the Republican promise that the 2017 tax reform legislation would give taxpayers the ability to file taxes by completing a “postcard” form, rather than the lengthy Form 1040 of the past.  The new Form 1040 is a two-sided, 5-inch by 7.5 inch, paper with six new schedules attached.  Schedules that were previously required continue to exist.  The postcard form also eliminates certain items that were modified by the tax reform legislation, such as the personal exemption and some miscellaneous itemized deductions.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions on whether the newly designed Form 1040 would simplify the tax filing process for this year’s filing season, or simply result in more confusion.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: For the vast majority of taxpayers, this newly designed postcard Form 1040 will make filing taxes significantly more simple, which was exactly what was promised when we enacted the tax reform package. I think the new form is unquestionably an improvement over what we were working with in past years.

      Bloink: This is another Republican ploy to make taxpayers think that something has been changed, that we’ve simplified the process—the new form isn’t more simple at all!  It only rearranges what was previously there.  Moving a few things around and calling it a simplified “postcard” does not give Republicans the right to tout this as another tax-related victory.  If anything, filing will be more confusing for many taxpayers this year.

      —–

      Byrnes: Just look at the first page—before, it required 17 lines just to list a taxpayer’s income.  We eliminated 10 of those lines.  That’s just one example of how the 1040 has been simplified.  Taxpayers who previously itemized deductions don’t have to worry about that anymore, all of those lines are gone.

      Bloink: Those lines weren’t eliminated, they were just moved!  The new Form 1040 has six new “schedules” attached to it—in addition to all of the pre-existing schedules and forms for things like HSA contributions and child care expenses. Now, if you have capital gains, instead of reporting it with the rest of your income, you now have to go searching among the old schedules for this new schedule that never existed before.  It’s like a wild goose chase; taxpayers don’t even know where to look anymore, creating substantial room for error.  I think any taxpayer would tell you that if you have to amend a return, it’s never a simplified process.

      —–

      Byrnes: The point is that the information on those schedules is irrelevant to most taxpayers.  Why force the everyday American to wade through line after line of irrelevant information just to file their taxes each year? This is a streamlined version of the old form, and taxpayers with complicated tax issues will get used to the new format.

      Bloink:  Not every taxpayer has capital gains each year, but I still think that reporting capital gains is a relatively common occurrence among taxpayers. This “remodel” was a complete waste of money, and a publicity stunt on the part of the Republicans. How many taxpayers even file their taxes by writing numbers onto a piece of paper anymore? The vast majority of taxpayers fill out their Form 1040s online, using IRS resources or a tax preparation software—or they consult with a tax professional who completes the form for them.

      —–

      Byrnes: Exactly, so we’ve simplified the process for those taxpayers with relatively simple returns who would rather save money and finish their taxes themselves.

      Bloink: Bottom line: The instructions to Form 1040 are now 117 pages long—that’s ten pages longer than last year’s instructions. I think it’s fairly obvious to say that if the form was simple, taxpayers would not need 117 pages of instruction in order to complete it successfully and … without confusion.

  • 0005. Section 199A Final vs. Proposed Rules

    • Concurrent with the Section 199A final regulations, the IRS released a proposed Revenue Procedure in order to provide a safe harbor that rental real estate businesses can rely upon in order to qualify as “trades or businesses” for purposes of taking advantage of the new 20 percent deduction for qualified business income of certain pass-through entities.  

      Rental real estate business owners will qualify as trades or businesses, so that they can claim the 199A deduction, if the entity (1) maintains separate books and records for each rental enterprise, (2) is involved in the performance of at least 250 hours of rental real estate services each year (these services can be performed by employees or independent contractors of the business), and (3) maintains contemporaneous records regarding the rental real estate services that are performed each year.  Notably, if the real estate is rented or leased under a triple net lease, the safe harbor is unavailable. 

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions on the new rental real estate carve out and its implications going forward.  

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: I’m all for this clearly laid out safe harbor, it gives rental real estate professionals specific guidance as to whether they will qualify for the new deduction, and lets them move forward knowing whether they will be characterized as a trade or business and able to take the deduction.

      Bloink: While I applaud the IRS for releasing the 199A final regulations so quickly, I think that this is yet another issue that they’ve simply kicked down the road.  Addressing issues in a piecemeal fashion is only going to create more confusion, make it difficult for clients to engage in efficient planning and also add to future litigation of the issue.

      —–

      Byrnes: I don’t find any confusion in the safe harbor—it follows guidance similar to the rules that apply to rental real estate professionals in the passive activities context, so the safe harbor should be simple and easy to apply.  It’s really as clear as we could have hoped for.

      Bloink: The safe harbor excludes triple net leases entirely—this is a huge faction of the rental real estate industry.  These “businesses” now aren’t sure whether they are able to qualify, so the safe harbor actually could provide motivation for a huge portion of the real estate industry to shift their business models to something that might not be as efficient or effective under the circumstances—this situation also creates uncertainty for the tenants who are relying upon those leases.

      —–

      Byrnes: Sure, but many real estate investors get involved in triple net leases for—among other important reasons—the fact that they get to have less involvement in the day-to-day of the business while still making money.

      Bloink: I just think that if the entire premise of this new Section 199A is revolving around the idea that the activity has to rise to the level of a “trade or business”, we should have some more definitive guidance on what it actually means to operate as a trade or business.  It seems simple, but it really isn’t—especially in the real estate sphere.

      —–

      Byrnes: If it wasn’t a trade or business before 199A existed, it shouldn’t be a trade or business just because there’s now a deduction involved.  The hard fact is that many real estate investors can’t legitimately say that those activities are businesses instead of investments that don’t require enough activity to qualify.  That’s not the point of the new code section, and we can’t spell out how the law applies to every circumstance.

      Bloink: What I’m trying to say is that by providing so little guidance on the issue—in addition to telling taxpayers to rely upon a body of case law that really isn’t all that clear—we’re creating an incentive for manipulation of what 199A is supposed to be.  What the IRS has provided is a box for real estate professionals to try to fit inside of—I don’t think we can deny that a lot of real estate investors may spend a significant amount of time and money trying to fit into that box where they otherwise were left outside.  When we’re talking about a deduction that could expire in a few years, I’m not sure that’s the best use of resources, and more clarity in the guidance could prevent this situation.

  • 0006. "Green New Deal" Proposal

    • Democrats, including newcomer Alexandria Ocasio-Cortez in Congress are gaining significant attention for their proposal, which is now being called the “Green New Deal”, and which, if it became law, would ambitiously promise that the government will take steps to deliver environmental protections, sustainable wages for all Americans, high-quality health care, education, healthy food for all and more.  The proposal, recently crafted into a formal resolution, would undoubtedly be extremely expensive—and also includes an extreme tax hike for the very wealthy—with a top income tax rate that is as high as 70 percent for some super wealthy taxpayers.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions on this sweeping new proposal, its likely impact and the likelihood that it will succeed if presented to Congress as a formal piece of legislation.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: I think most reasonable people know that the “Green New Deal” proposal is entirely unworkable and could never be passed in its current form.  The sheer size and expense of this idea are what make it unworkable, a pipe dream introduced by Democrats who aren’t willing to take responsibility for the cost of the “big government” for which they advocate.

      Bloink:  The ideas in the Green New Deal should not be hailed as unreasonable.  A healthy environment, a guarantee of a living wage and quality health care…these should not be called “pipe dreams”.  And yes, it will be expensive to accomplish these ambitious goals, which is why a significant tax increase on extremely wealthy Americans who can afford to shoulder that tax burden, has also been proposed by the same members of Congress.

      —–

      Byrnes:  A 70 percent tax burden on the income of hardworking Americans is unreasonably regardless of how much wealth that hard work has allowed them to accumulate!  Think about the negative repercussions of such an imbalanced taxing system.  When taxes rise like this, Americans have less incentive to work—because they get to keep less of their income.  Wealthy taxpayers who own business and provide gainful employment to hundreds of equally hardworking Americans will be forced to cut down on investment and growth, resulting in job cuts and having an overall negative impact on the strength of our economy.

      Bloink:  This deal also proposes investing the proceeds of these tax hikes in the future of all Americans—creating new opportunities for growth and “green” technology and innovation to bring us into the future.  Look at where American stands in relation to other developed nations (where, notably, taxes on everyone tend to be significantly higher than in the U.S.).  We’ve reduced the corporate tax rate so dramatically, increasing the income tax burden that we impose on the super-rich who also tend to own or profit from these large corporations, is a fair trade off.

      —–

      Byrnes: Professor Bloink is forgetting that the trickle down impact of reduced taxes works both ways.  Such a significant increase in taxes eliminates the profit motive that keeps this country growing and our economy strong.  We need to incentivize hard work, not penalize taxpayers for their efforts.

      Bloink:  And Professor Byrnes’ arguments fail to take into account the fact that the super-rich will still be super-rich if this new system of increased taxes is imposed.  Remember that a 70 percent top rate does not literally mean that we’ll be taking away 70 percent of every wealthy taxpayer’s wealth, our tax system just doesn’t work that way.  We’re also talking about super wealthy taxpayers who invest substantially in avoiding their fair share of federal income taxes—meaning that, at some level, the Green New Deal would create a more equal tax system if it is eventually successful, which I hope it will be.

  • 0007. Penalty Relief for Underpayment in 2018

    • The 2017 tax reform legislation made changes to the income tax brackets, limited or suspended various itemized deductions and suspended the personal and dependency exemptions from 2018-2025.  Because of these substantial changes, the IRS and Treasury Department developed new withholding tables to help employers estimate how much income tax to withhold from employee paychecks.  In some cases, the new withholding tables resulted in situations where insufficient income taxes were withheld throughout the year, so some taxpayers are now finding that they underpaid for 2018 and will owe the IRS additional taxes in addition to the generally applicable underpayment penalty.  The IRS has announced that it is providing penalty relief to certain taxpayers who underpaid during the 2018 tax year.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions about this underpayment relief, and whether it would be sufficient to help taxpayers who underpaid because of tax reform in 2018.

      Their Votes:

      Byrnes

      Bloink

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: The underpayment relief provided by the IRS and Treasury should be more than sufficient to help those taxpayers who underpaid their tax liability in 2018 because of the new tax law changes.  So long as these taxpayers paid at least 85 percent of their tax liability, as opposed to 90 percent of tax liability, throughout the year, they will not be subject to any penalties at all.

      Bloink:  All underpayment penalties should be waived for taxpayers who underpaid their tax liability throughout the year in reliance on withholding tables developed by the IRS and Treasury.  The current penalty relief does not go far enough.  We’re talking about an income tax system that was entirely revamped beginning last year, so that taxpayers couldn’t even rely upon the usual methods for determining tax liability during the year.  If the underpayment wasn’t the taxpayer’s fault, which is the case in the vast majority of cases this year, they the taxpayer should not be penalized.

      —–

      Byrnes:  I agree with Professor Bloink, which is why the IRS has provided this penalty waiver relief.  Only those taxpayers who underpaid because of justifiable confusion with the new tax code should be exempt from penalty.  I think that if you seriously underpaid in your taxes for 2018, that confusion likely was not justified, so it makes sense to continue to impose a penalty for those taxpayers.

      Bloink:  The 85 percent mark is arbitrary.  This is something like 30 million taxpayers who will unexpectedly owe the IRS additional taxes for 2018 because of the new withholding tables—not just a few taxpayers who weren’t paying attention or deliberately underpaid.  Taxpayers who relied upon the new withholding tables to calculate their 2018 tax liability should not be subject to penalty for relying on the tables that the government provided.

      —–

      Byrnes: Everyone just got a huge tax break this year and yes, the law was changed, but taxpayers are still responsible for paying their taxes and there has to be some kind of penalty for those who do not pay on time.  Waiving all penalties for the year is like a get out of jail free card for those taxpayers who didn’t responsibly calculate and pay their taxes.

      Bloink: Professor Byrnes is missing the point here.  Sure, some taxpayers will owe less in 2018, but others will end up owing more than expected, primarily because of the changes to the tax code designed to generate revenue to offset the massive corporate tax break that this tax law has created (for example, the SALT cap).  Now, the IRS and Treasury have provided new withholding tables used to calculate those taxes, and in many cases, those withholding tables led people to pay too little throughout the year.  So we’re now saying that the very entities that developed the withholding tables get to also collect a penalty from taxpayers who underpaid…. because of the withholding tables?  That’s unfair if I’ve ever seen unfair.

  • 0008. Financial Transactions Tax

    • House Democrats recently introduced a bill that would impose a tax on certain types of financial transactions, including a 0.1 percent tax on various securities transactions, including sales of stock, bonds and derivatives.  While the bill would generally exempt initial securities issuances and short-term debt from the tax, most securities transactions and taxpayers who invest would be subject to the tax at some point.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions about the viability of the financial transactions tax and the potential implications if this bill is passed.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: This miniscule tax would generate an enormous amount of revenue that could be used to support the middle class and working Americans, and would largely be borne by very wealthy investors and banks that make risky and frequently trades in order to generate huge profits for themselves.  We need to find some way to fund badly neglected infrastructure projects, reduce the deficit, fund health care research…the list goes on and on…and this tax would raise an estimated 777 billion dollars over ten years—an amount that would go a long way toward making this country much stronger than it is today.

      Byrnes: This is just another crazy Democratic proposal to find yet another way to tax the rich, but, as with most of these proposals, it will actually end up hurting us all.  This bill would do nothing but cause harm to investors and the economy as a whole, at a time when we’ve been working to strengthen the job markets while also providing protections for those who invest their hard-earned funds in the financial markets to help grow the economy and make American strong.

      —–

      Bloink: I fundamentally disagree.  Not only will this tax have very little taxing impact on middle class investors, but it will actually serve to help protect them from another market crash similar to what we experienced in 2008.  Wealthy investors and huge banks enter into complex financial transactions and trades constantly—literally billions per day–and often without sufficient thought as to how their actions might impact anything other than their bottom line.  This additional tax might just motivate these players to stop and more fully consider any financial transaction before deciding to execute.

      Byrnes: Professor Bloink is wrong on this one.  This tax would negatively impact the everyday middle-class investor who is just trying to save for a home, retirement or maybe for their children’s college, imposing an extra tax that they don’t need or deserve and disincentivizing savings at a time when we need to be doing the opposite.

      —–

      Bloink: Almost half of the trades made every day are considered to be high-frequency trades.  Speculation and an almost gambling-like mentality is what got us into the biggest financial mess of our times over ten years ago.  The level of risk and market volatility that this type of trading creates is unacceptable—this is not the sort of market activity that fuels long-term, stable economic growth in this country.

      Byrnes: Where do the Democrats think pensions and 401(k)s are invested?  These types of savings vehicles would all suffer if this financial transactions tax was implemented.  More taxes are not the answer to this country’s problems—we need to allow people to invest their earnings as they see fit and not punish them for trying to save.

      —–

      Bloink: This about this from a fairness perspective—we all pay sales tax on transactions, right?  Wall Street generally has been exempt from the requirement to pay tax on their transactions, and why?  When you buy a newspaper, you pay sales tax.  When you buy a stock or bond, you don’t have to pay a sales tax.  This current no-tax system is a huge benefit for the super-rich in this country, and I’m all in favor of imposing this small financial transactions tax that would generate huge results for the rest of the country.  Additionally, so much of what actually happens in the markets involves behind-the-scenes arbitrage transactions that do almost no good and only increase the price of securities for other investors—i.e., arbitrage transactions that generate extreme profits today could also create tax revenue for the future.

      Byrnes: Efficient markets thrive on liquidity—investors and businesses should not be motivated to keep their money in investments that are no longer advantageous in order to avoid a tax on an extra transaction—that creates more harm than good in the long run in weakening the markets.

       

  • 0009. State Trust Rules

    • The United States Supreme Court recently agreed to resolve a conflict stemming from a case involving whether a state can constitutionally tax a trust when a trust beneficiary resided within the state, but did not receive any income from the trust.  In the case of North Carolina Department of Revenue v. Kimberly Rice Kaestner, the North Carolina Supreme Court ruled for the beneficiary in that case, finding that the North Carolina state-level tax on the New York-based trust was unconstitutional because it violated the due process clause of the U.S. constitution.

      Currently, 11 states tax trusts based on the residency of trust beneficiaries—although nearly all states tax trust income once the beneficiary actually receives that income.  Courts in various states have disagreed over whether the residency-based tax is constitutional.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions as to whether the USSC should affirm the state court decision, and the potential implications of the Court’s final decision.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: The North Carolina Supreme Court was absolutely right on this one—the location of a trust is what should determine when a state can tax the trust.  It would be an entirely different story if the beneficiary who lived in North Carolina had actually received some trust income from the trust, which was formed in New York.  That trust income clearly would have been subject to state-level income taxes, but at the trust level itself?  No.

      Bloink: Overturning North Carolina’s law would be the right move in this case, and to do otherwise would create yet another option to allow the super-rich to avoid taxes.  Trusts serve any number of completely valid purposes, but shouldn’t serve as tax shelters for the wealthy.  So long as a trust has strong contacts to the state itself, the state should be able to tax those funds.

      —–

      Byrnes: The Court is opening the door to chaos if they uphold the North Carolina law.  A trust can be formed in one state, and have beneficiaries in any number of states—and yes, it makes sense that when those beneficiaries receive income from the trust, they get taxed on that income.  But when the funds stay within the trust…which doesn’t even “live” in that state…the state gets to tax that trust just because a beneficiary lives in the state?  That just doesn’t make any sense.

      Bloink: Except it does make sense.  These wealthy taxpayers don’t need the funds in the trust, and billions of dollars worth of assets move through trusts every single year.  Not allowing a state to impose their own taxes on those trusts when a trust beneficiary chooses to reside in the state would create a huge inequality between state residents, and a completely unwarranted motivation for clients to flee to “tax-friendly” states to set up their trusts, while continuing to reside elsewhere.

      —–

      Byrnes: People move all the time—look at the beneficiary in this case, she moved from New York to North Carolina and now lives in California.  What if she had bought stock while living in New York and sold it once she moved to California?  Did North Carolina get to tax the appreciation on that stock while she held it?  No, of course not.  The state could only have taxed the proceeds once the taxpayer received the actual income.

      Bloink: A trust situation is different, trusts provide a powerful strategy for avoiding taxes entirely, and that avoidance potential justifies looking to significant contacts that the eventual beneficiary has with the state that wants to impose taxes.  What if the beneficiary here had lived in North Carolina all her life, set up the trust in New York, and when she wanted to take a distribution from the trust down the line, moved to Florida for a year to avoid any state-level taxes?  That’s a significant loophole, and these wealthy taxpayers have the resources necessary to take advantage and avoid state-level taxes for decades.

  • 0010. Sander's Estate Plan

    • As the Democratic primary season begins to take shape, Bernie Sanders has once again emerged as a key possibility for the Democratic presidential nomination for 2020.  Sanders, as in 2016, has proposed dramatic changes to various aspects of the existing tax system.  The Sanders proposal would create significant changes in the current estate and transfer tax system, creating concerns for higher income taxpayers who have come to rely upon the relative high estate tax exemption that has been in place for most of the decade.  Sanders’ proposal would reduce the exemption from its current $11.4 million per person all the way down to the levels that existed in 2009—a mere $3.5 million per person—as well as impose increases to the estate tax rate itself.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions as to both the viability and potential impact of Sanders’ estate tax plan should he or a similarly-minded Democrat reach the White House.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: I’m all for this type of plan, although I think it’s far too soon to tell whether Sanders has a fighting chance at the presidency despite his general popularity.  Sanders’ estate tax proposal focuses on taxing the super-rich taxpayers who would otherwise be engaging in drastic estate planning techniques to avoid transfer taxes entirely and create dynasties that have, historically, lasted for generations.  It’s time that we focus more on what the country needs instead of encouraging such dramatic wealth inequity.

      Byrnes:  There’s no way Sanders’ estate tax scheme will ever become reality, so I’m not overly concerned.  I do think this might be a call to action for wealthy clients who have tended to sit back and rely upon the generous estate tax exemption rather than engaging in any type of estate planning—and a reminder that estate planning is about more than just the transfer tax itself.

      —–

      Bloink:  Maybe Professor Byrnes is right in that this specific plan won’t take off, but it’s a reflection of where the party itself seems to be headed—just take a quick glimpse at the pool of Democratic presidential hopefuls to date.  I think there’s a huge movement in this country that could easily allow for a tax system that taxes the super-rich dramatically in order to provide what this country so critically needs right now—improvements to infrastructure, education and health care.

      Byrnes: Professor Bloink keeps talking about the “super-rich”, but this proposal would reduce the exemption to a mere $3.5 million per person—that’s not $3.5 million in annual income, that’s $3.5 million in the cumulative wealth that’s been amassed over a person’s entire lifetime.  An exemption of $3.5 million creates a massive tax hike for taxpayers who would never be characterized as “super-rich” by any standard.

      —–

      Bloink: The “massive tax hike” in Sanders’ plan—a 77 percent estate tax rate—applies only to estates worth over $1 billion.  I don’t think anyone can say that someone who’s amassed $1 billion over a lifetime is anything but super-rich.

      Byrnes:  Sure, but the plan still cuts the exemption by 2/3.  Think about why the estate tax exemption is so high in the first place—we don’t want to discourage Americans from working hard and amassing a comfortable amount of wealth.  If you put these huge transfer tax rates out there, where’s the incentive for small business owners to spend their lives working hard to fuel the economy and create jobs?  If all those funds will be taxed away anyway—and remember that Sanders’ plan also does away with some of the completely valid strategies that taxpayers might use to avoid these crazy taxes—I think that removes the incentive to create and innovate for a lot of Americans with moderate wealth.

  • 0011. New ACA Proposal

    • While GOP candidates continue to fight to strike the Affordable Care Act own in its entirety, Democrats in Congress are actually working toward goals designed to strengthen the ACA for the future.  Recent proposals by House Democrats would focus on changes to the subsidies available under the law—known as the premium tax credit.  Under current law, a taxpayer must have household income that is below 400 percent of the poverty line, based upon family size, to qualify for any type of premium tax credit subsidy.  The new proposal would expand the availability of the subsidy without regard to the 400 percent limitation on household income.  The proposal would also fix a so-called “family glitch” in the law, by allowing a taxpayer’s family to qualify for subsidies even if the taxpayer has access to employer-sponsored health coverage that would be deemed affordable under the ACA for that taxpayer alone.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions about the new proposal for strengthening the ACA currently that is currently being considered in Congress.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: The 400 percent of the federal poverty line threshold was arbitrary to begin with.  By eliminating that restriction and focusing upon the primary goals of the ACA—making comprehensive health coverage affordable for all Americans—we’re going to be able to eliminate many of the problems that taxpayers have with the current structure of the law.

      Byrnes:  This looks like socialized medicine if I’ve ever seen it.  We’ve been here and we’ve seen this, and American taxpayers have overwhelmingly rejected socialized medicine by electing the leadership we have today.  I don’t think that this last-ditch effort by Democrats will be able to save the ACA from its fundamental problems.

      —–

      Bloink:  And I disagree—what’s the primary complaint that any average, working class American taxpayer has about the Affordable Care Act?  It’s that the coverage isn’t affordable for them.  Even before the individual mandate—the penalty tax for failing to have health insurance—was eliminated, taxpayers were paying the penalty instead of purchasing health insurance because health insurance remained too expensive.  This plan specifically addresses that concern by expanding access to government subsidies even for taxpayers with income that exceeds the current 400 percent threshold.

      Byrnes:  Sure, a primary complaint is that health insurance premiums are too expensive.  But what about the deductibles taxpayers face once they purchase “qualifying health insurance coverage”?  How useful is a $400-per-month insurance policy if the taxpayer has to satisfy a $7,000 deductible to use it?  The new bill the Democrats have put forward barely touches on the issues Americans have with the ACA, which is just flat out unconstitutional and should be thrown out entirely.

      —–

      Bloink:  And yet Republicans have yet to put forward any type of viable solution.  Leaving millions of Americans without access to health insurance is not a viable solution—simply saying that the ACA is unconstitutional?  Also not a solution, remembering that we can’t just throw out the entire U.S. health care system without extreme negative consequences.  We’re trying to build a better ACA with this proposal, which even addresses situations where employer-provided coverage is too expensive for working Americans with families.  Once the modifications were fully effective, qualifying taxpayers would never put more than 8.5 percent of their household income toward health insurance premium payments—even if they aren’t eligible for any subsidy at all under today’s structure.

      Byrnes: To say that the current GOP leadership has done nothing to help fix the problems in our health care system is patently wrong—we’ve worked to expand access to lower cost health plans for those taxpayers who choose those plans over comprehensive coverage.  Also hidden in this bill is a plan to eliminate that possibility entirely—eliminating Americans’ right to choose their own coverage level and the amount they must pay for that coverage based upon their own personal needs.  Even more?  The cost of this bill would be enormous, putting more money into the sinking ship that is the ACA when we should scrap it entirely and start from scratch.

       

  • 0012. Pension Lump Sum Distributions

    • Recently, the IRS released a revenue ruling announcing that it would not amend the required minimum distribution (RMD) rules in such a way as to prohibit pension plans sponsors from offering a lump sum “cash out” option to plan beneficiaries who are already in pay status—in other words, to those beneficiaries already receiving their pension benefits as an annuity.  While the ruling does not explicitly permit plan sponsors to offer a lump sum distribution option to beneficiaries in pay status, the IRS essentially indicated that it had no current plans to explicitly prohibit this option, leading to debate as to whether such a move is advisable.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions about the advisability and potential impact if pension plans were to begin offering retired beneficiaries the option of converting their pension annuity payments to a lump sum payment.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: I think this is a fine idea.  The restrictions in the IRC about changing benefit levels for retired pension beneficiaries in pay status should only apply to restrict situations where the retired beneficiary is going to be adversely impacted.  Giving a beneficiary who is already receiving an annuity benefit the option of switching to a lump sum helps the pension and helps the beneficiary—a win-win situation.

      Bloink: Professor Byrnes overlooks the fact that many pension beneficiaries don’t have the access to financial advice necessary to manage those funds in retirement.  Remember, the entire point of an annuity pension benefit is to provide security to these recipients for their entire lives.  Giving them access to lump sum options at this point could spell retirement income disaster for former workers who don’t simultaneously have access to the professional advice needed to appropriately manage a lump sum to provide secure retirement income potentially for decades.

      —–

      Byrnes: So many pension beneficiaries are reading the news and wondering whether their pension benefits will even last a lifetime at this point.  Plan sponsors are doing everything they can to de-risk, and yet they’re still petitioning to reduce benefit payments to those already receiving payments.  Letting these beneficiaries change their minds and take a lump sum buyout would provide peace of mind to a lot of retired folks who are nervous about their benefits.

      Bloink:  I’m not saying a lump sum buyout is a bad option.  I’m saying that it’s a bad idea to provide the option without simultaneously providing these beneficiaries with access to much-needed financial advice to protect their financial stability going forward.

      —–

      Byrnes: Beneficiaries aren’t under any obligation to accept the buyout offer—it’s just an option.  And frankly, it’s an option provided at a time when a lot of these retired folks now have better information necessary to make an informed decision.  Evaluating a pension buyout involves looking to your life expectancy and the long-term viability of the pension itself, and many retired beneficiaries have better information now than they did 20 years ago.

      Bloink: In this day and age, I would wonder who wouldn’t take the cash-out offer with all the media coverage surrounding pension woes?  With proper management, a retiree can take a buyout and turn that into a secure lifetime income stream that might be even more stable than that provided by the pension plan itself.  But an untrained beneficiary who puts the payout in a checking account?  Or worse, goes on a buying spree?  We could see some people put into a bad financial situation because of the in-retirement cash-out option.  We shouldn’t be encouraging pension de-risking if that, in turn, is putting a class of former workers at risk.  If pension plans want to de-risk in this way, they should be responsible for providing at least some basic financial counseling in conjunction with the cash-out offers.

       

  • 0013. SECURE Act to Modify RMD Age

    • One proposal in the retirement bills, generally known as the SECURE Act, making their way through Congress would modify the required minimum distribution rules that apply to owners of traditional IRAs.  Currently, the RMD rules require that owners of traditional retirement accounts (including IRAs and 401(k)s) begin taking distributions from those accounts once the account owner reaches age 70 ½.  In general, if an individual owns a traditional retirement account that was funded with pre-tax dollars, he or she is required to begin taking taxable distributions from that account beginning April 1 of the year following the year in which the owner reaches age 70 ½.  For many taxpayers, this arguably requires them to begin taking retirement distributions regardless of whether they have, in fact, retired.

      The SECURE Act would raise the existing age threshold to age 72 for IRAs.  We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions as to the impact and viability of this proposal.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: Raising the RMD age to 72 reflects the current reality that many older Americans are facing.  Whether out of necessity or increased longevity, Americans are working later in life than ever before.  There’s no reason these working Americans should be required to take retirement distributions when they haven’t retired—and, might I add, severely penalized for failing to take those unnecessary distributions.  We want to encourage saving, and we want to see taxpayers with IRA balances sufficient to fund a lengthy retirement—this is a good thing.

      Bloink: I disagree.  Sure, Americans are working later in life, but by and large, working class Americans who continue to work past age 70 ½ are doing so in a reduced capacity so that they can supplement their Social Security and retirement account distributions.  Raising the age by a year and a half really only allows the wealthy to continue to defer taxes for another year and a half—the average American who’s reached age 70 ½ needs the distributions to fund their living expenses.  So while this change would seem to benefit everyone, in reality, only the well-off would actually benefit.

      —–

      Byrnes: Taxpayers should be allowed to decide what to do with their own hard-earned dollars.  Once the taxpayer reaches age 70, he or she is required to begin collecting Social Security benefits even if they were previously deferred, so the reality is that many taxpayers have sufficient income even if they are working in some reduced capacity.  I don’t see this as a ploy to benefit the rich at all—wealthy taxpayers aren’t going to derive significant benefit from another 1.5 years of tax-deferred growth.

      Bloink: I think that’s fundamentally untrue.  It’s the richest Americans who have been able to grow the largest IRA balances over the years, and the larger the balance, the greater potential for growth.  Even more importantly, in my view, is the fact that “age 72” is an arbitrary number and creates a type of slippery slope situation.  Americans need to look at this issue from all angles—if we’re saying that taxpayers don’t need their retirement funds until age 72, what about Social Security?

      —–

      Byrnes: What about Social Security?  Social Security payments are taxed entirely differently than IRA distributions and are governed by an entirely different set of rules.  There’s no slippery slope argument here, just the argument that taxpayers should be able to leave their retirement funds alone until they actually need those funds to fund retirement—we’re not talking about penalizing those who choose to withdraw before age 72, taxpayers still have the option of taking the funds sooner if they need the money.

      Bloink:  The slippery slope is, of course, the fact that we’re already raising the normal retirement age for Social Security purposes—the age at which taxpayers are entitled to collect full retirement benefits is increasing gradually from 66 to 67.  Why not 72?  If we think that taxpayers don’t need retirement funds until age 72, and Social Security is meant to provide a retirement income supplement, it’s only a matter of time before we’re raising the Social Security normal retirement age even higher, which, of course, would result in taxpayers receiving a lower overall Social Security benefit over the course of their retirement.

  • 0014. Medicare Opt-Out

    • One proposal floating around Republican circles (and formally introduced in the Senate’s Retirement Freedom Act) would allow senior citizens to decide to opt-out of Medicare Part A coverage without jeopardizing their eligibility for Social Security retirement benefits.  Under current law, senior citizens are automatically enrolled in Medicare Part A when they begin to claim Social Security benefits.  Medicare Part A is free for many taxpayers who have satisfied certain work-related requirements, and for others, the premiums can be deducted from Social Security benefits.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions about this aspect of the retirement legislation and its potential impact on the insurance markets.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: Senior citizens—and, frankly, all taxpayers—should be entitled to make their own decisions regarding health coverage without the government stepping in to push them toward one option.  This bill would go a long way toward allowing senior citizens to fully make their own choices regarding health coverage, and I think it’s a step in the right direction for this country.

      Bloink: The entire rationale behind automatically enrolling senior citizens in Medicare Part A coverage is a recognition that this group of individuals is likely to need significant medical care, and they should have access to that care without the need for going through the complicated motions of determining the level of care that they might need.  The bottom line is that someone has to pay for this coverage, and the government has found a way of providing mandatory health coverage on a fairly subsidized basis for at least one particularly susceptible group of Americans.

      —–

      Byrnes:  Senior citizens have other options and should be allowed to choose from the entire pool of options without having their hands forced by the politics of the Social Security system and entitlement programs.  If someone thinks that private health insurance is the way to go, politicians shouldn’t have the right to step in and insert their own opinions by requiring this group to choose a single health coverage option.

      Bloink: This bill provides no real safeguards to make sure that American senior citizens have the access to health insurance coverage that they need—even if someone is lucky enough to escape major health issues, at some point, the odds are simply there that a senior citizen will need the coverage provided by our Medicare Part A system.  Of course declining Medicare Part A will be attractive for some people who must pay for the coverage—they’ll get the benefit of the increased Social Security check without any real assurance that they will have the health coverage that they will eventually need.  Senior citizens who are retired may or may not have the resources necessary to take the financial hit caused by a huge medical bill—remembering that private health insurance in America doesn’t cover every expense.

      —–

      Byrnes: We aren’t getting rid of Medicare Part A insurance, we’re just saying that senior citizens shouldn’t be forced into it.  The government shouldn’t get to decide what any given person’s health situation calls for in terms of insurance coverage—seniors know their own needs better than the government, and this new proposal recognizes this basic fact.  Why should seniors have to pay for benefits that they don’t need or want?

      Bloink: But we have to consider the system as a whole, and the benefits that Medicare Part A is designed to provide.  Medicare Part A is hospital insurance—and while the coverage is not comprehensive with respect to long-term care, it is one element of an extremely fragile system that, frankly, has been crumbling for years.  Hospital and long-term care coverage is extremely expensive, and costs are rising.  We unfortunately haven’t found a way to fix that yet, or to make sure that every American has access to the type of long-term care insurance that they might eventually need, but Medicare helps by providing some level of coverage when absolutely needed.  By allowing seniors to opt-out of Medicare Part A coverage, we could devastate the insurance system as we know it.

  • 0015. Making 199A Permanent

    • Current Section 199A was added by the 2017 tax reform legislation in order to provide small business owners who operate pass-through business entities with a tax break similar to the tax cut given to traditional C corporations post-tax reform.  Section 199A, in general, provides pass-through business owners with a 20 percent tax deduction for qualified business income.  Limitations apply for businesses that operate as service businesses and for business owners with income that exceeds certain annual thresholds, the deduction is calculated using the W-2 wage income paid by the business and by looking to the business’ basis in certain qualified assets.  The deduction is set to expire after 2025, and Republicans in Congress have proposed making Section 199A permanent.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions about the viability and advisability of making the current Section 199A pass-through business tax regime permanent.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: We need to make the new QBI deduction permanent so that America’s small business owners know that they can rely upon a steady tax system over the years that isn’t going to flip flop back and forth after only a few short years.  Business owners can only be successful if they can accurately plan for how their tax liability is going to impact the bottom line, and making Section 199A permanent is a step in the right direction toward providing tax certainty for these small business owners.

      Bloink: I agree with Professor Byrnes that it’s important to give small business owners tax certainty, but I don’t agree that the current Section 199A regime should be made permanent.  Section 199A is so complicated that it would almost be laughable if it wasn’t the actual tax system that most small business owners in this country had to deal with.  We should give our small business owners a permanent tax break, but it shouldn’t be the 199A version.

      —–

      Byrnes: The only reason that Section 199A wasn’t made permanent in the first place was because Democrats refused to cooperate in passing the tax reform package, which meant that certain tax breaks had to be made temporary for deficit issues.  If Democrats would simply cooperate in the process, small business owners could get the tax break they deserve.

      Bloink: Democrats wouldn’t cooperate because this wasn’t the right tax cut package for this country’s small business owners.  Current Section 199A contains exception after exception and is confusing to almost every small business owner with income that exceeds the annual income limitations.  It doesn’t make any sense that we aren’t giving small business owners a simple, easy to apply tax break that’s on par with the break given to large corporations.

      —–

      Byrnes: The reason Section 199A is complicated is because the entire pass-through business taxation system is complicated.  We have to build in safeguards to make sure that taxpayers aren’t using pass-through “business” structures as tax shelters designed to skirt the tax system and we also need to make sure the tax cuts are benefitting the businesses we want them to benefit—small businesses and businesses that make substantial investments both in creating jobs and growing their business asset structure.  Section 199A is complex, but it accomplishes the goals that we want to further and should be made permanent.

      Bloink: Anyone who’s ever spent a significant amount of time wading through the Section 199A regulations and trying to apply the rules to a particular business knows how difficult the system has become. Yes, we want to make sure the tax cut is benefitting legitimate small business owners, but we can accomplish those goals with much greater simplicity than the current system offers.  Make small business tax cuts permanent, yes, but Section 199A needs significant revisions.

  • 0016. ACA Constitutionality Challenge

    • The Department of Justice (DOJ) has announced that it will not defend the constitutional viability of the Affordable Care Act (ACA) in the upcoming battle over the ACA’s constitutionality in the Fifth Circuit Court of Appeals. Late last year, the Fifth Circuit struck down the ACA as unconstitutional in its entirety after the repeal of the individual mandate by the 2017 tax reform package. While the DOJ had previously indicated that it would support the majority of the ACA provisions, it has now indicated that it will not support the ACA and, in fact, stated that it agrees with the rationale behind the lawsuit.

      We asked two professors and Tax Facts authors with opposing political viewpoints to share their opinions on this reversal of position by the DOJ, and its potential impact on the success of the upcoming ACA challenge.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: The ACA is a sinking ship, and our government—the DOJ included—should not spend one more cent defending the patently unconstitutional law. My position on this issue is simple. The entire ACA needs to go so that we can develop a system that more fairly protects Americans’ rights and provides them with the quality healthcare options that the ACA has entirely failed to generate.

      Bloink: Congress may have gutted the individual mandate, but it specifically and purposefully left the other main provisions of the ACA completely intact—including the protections for Americans with preexisting conditions that would be demolished along with the rest of the ACA, should the Appeals court decide to uphold the lower court decision. The ACA is an extremely far-reaching law that impacts so many issues that are often overlooked even in political circles. Those provisions are legally distinct from the individual mandate—many, in fact, have little to do with the mandate—and can stand on their own. The DOJ is taking a huge risk in its decision to abandon the ACA.

      —–

      Byrnes: The math on this one is so simple. The Supreme Court, way back in 2012, said that the ACA was constitutional, but only because the individual mandate was a reflection of Congress’ ability to levy taxes. Now the individual mandate is gone, so the logical conclusion is that without that individual mandate, the entire ACA is unconstitutional—meaning that according to the Supreme Court, the remaining provisions can’t stand on their own.

      Bloink: I think the most important aspect of this argument is the fact that the Republicans who have fought so long to dismantle the ACA have proposed no alternative solution. All we hear is rhetoric—Republicans say that the ACA is bad and should be declared unconstitutional, but everyone seems to agree that we need to protect those with preexisting conditions. We can’t dismantle the ACA protections without a concrete plan in place to make sure Americans’ healthcare needs are fully protected—and that includes the protections for Americans with preexisting conditions.

      —–

      Byrnes: The DOJ’s decision not to defend the ACA is going to have a significant impact on the court’s decision making process. If the federal justice department says that the remaining provisions of the ACA cannot stand on their own, that’s going to impact the reasoning of the judges tasked to make the determination. I’m not saying the appeals court decision will be the final nail in the unconstitutional ACA’s coffin, but it’s a step in the right direction.

      Bloink: The government has failed to respond to requests for information about how the system would work if the Fifth Circuit affirms the lower court ruling and vacates the ACA. The bottom line is that the DOJ’s decision to abandon the ACA puts the insurance markets at risk—insurance companies don’t know how to plan for the future and their only option is to keep premium costs high in the interim, which hurts everyone.

  • 0017. Eliminating the Stretch IRA

    • Although the retirement-related legislation currently pending in both the House and Senate contain many provisions that would impact clients’ retirement planning options, the primary mechanism for paying for those changes involves eliminating or limiting the value of the “stretch” IRA. Under current law, beneficiaries who inherit an IRA may be permitted to stretch the tax deferral benefits of the IRA over the beneficiary’s lifetime, rather than requiring the beneficiary to take the distribution in a taxable lump sum currently. While the two bills in Congress are slightly different, both would limit the amount of funds that could be passed to heirs on a tax-preferred basis via an inherited IRA.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions as to whether the current beneficial treatment of the stretch IRA should be limited or eliminated.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: This debate has been going on for as long as I can remember, and my opinion hasn’t changed. IRAs are retirement planning vehicles and have been given preferential tax treatment to encourage saving for retirement—not to allow the super-rich yet another way to transfer wealth to the next generation on a tax-preferred basis. Limiting the stretch IRA would limit one option that the rich can use to game the system, and it would be a step toward ensuring that these wealthy taxpayers are paying their fair share.

      Byrnes: And I think we should leave the stretch IRA rules alone. Beneficiaries who inherit IRAs are, at least in the vast majority of instances, inheriting retirement funds that were saved for retirement. We shouldn’t punish these individuals with a steep and immediate tax bill because their loved one died before getting the chance to use those funds in retirement.

      —–

      Bloink: This is why the actual legislation would only apply to accounts that are significant in value—one of the bills calls for eliminating the possibility of stretch treatment only for accounts valued at $450,000 or more. We’re exempting half a million dollars in inherited funds from immediate taxation upon transfer—the beneficiary could even spread the remaining funds over a five-year distribution period. I think that more than ensures that this new legislation is only targeting taxpayers who are trying to game the system by using retirement accounts as tax-preferred wealth transfer vehicles.

      Byrnes: What are we recommending that the average taxpayer saves for retirement, $1 million or so? So, under that version of the legislation, if the average client dies too soon and leaves a $1 million retirement account for his or her loved ones, those grieving beneficiaries would be hit with a tax bill based on a $550,000 inheritance. That’s ordinary income, and recognizing that income in a short period of time would have the ripple effect of pushing those clients into a higher tax bracket. It doesn’t seem fair to me. Avoiding that scenario is why we allow stretch IRA treatment in the first place.

      —–

      Bloink: It doesn’t seem fair that a taxpayer who gets a $550,000 windfall is required to pay taxes on those funds? That seems fair to me. Taxpayers with the largest IRAs that are left as inheritances are those who are so wealthy that they don’t need the IRA funds in retirement—that’s the most common scenario where IRA funds are being transferred to the next generation rather than being spent in retirement.

      Byrnes: Where is the equity in that? The estate tax exemption is $11.4 million per person in 2019. Why should that $550,000 “windfall” be taxed as ordinary income to the beneficiary? This part of the bill is designed to pay for other changes, and needs work if we’re going to ensure that the bill is fair and not just another Democratic ploy to over-tax the rich.

  • 0018. Raising Social Security Age

    • Social Security reform is a hot button topic in many political circles, and one that impacts nearly every American in one way or another as the solvency of the Social Security system continues to be threatened. Recently, the full retirement age for claiming Social Security benefits has gradually been increased, so that for most taxpayers, it is now age 67 (rather than 66, as under previous law). Various proposals have been floated to increase the Social Security full retirement age again, over time, to age 68 (and maybe even higher in the future).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the advisability and potential impact of raising the Social Security full retirement age once again.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: Raising the Social Security age reflects reality—the reality is that Americans are living longer lives than ever before, and, because people are healthier as they age, they continue to work longer. This means that many don’t have to rely upon Social Security until a later age, so that this move toward saving the Social Security program for everyone really helps everyone who relies upon the system.

      Bloink: Raising the Social Security age to save Social Security is a cop out. This move would help wealthy taxpayers avoid paying Social Security taxes on a greater portion of their income—a much more viable way to save the system—at the expense of lower income taxpayers and minorities who work in labor-intensive fields. The right move would be to increase the Social Security earnings cap so that we’re bringing more funds into the Social Security system, rather than taking steps to pay less out of the system.

      ____

      Byrnes: Social Security is meant as a supplement to retirement income. If people aren’t retiring as young as they used to, it only makes sense to raise the full retirement age gradually. Everyone’s eventual Social Security benefit is based upon what they pay into the system—which is based on income in working years, because the point is to maintain that lifestyle. Raising the earnings cap even further than the current level would mean that the wealthy are subsidizing everyone else’s retirement. Unless those taxpayers are going to receive substantially higher future benefits, that move would be the one that’s unfair.

      Bloink: All raising the full retirement age would do is force more Americans to live on reduced Social Security checks. Lower income taxpayers receive lower Social Security benefits in the first place. The fact is, many of these taxpayers work in more labor intense fields in which they simply cannot continue to work once they reach a certain age. These jobs take a more substantial toll on the worker’s physical well-being, as well, meaning that these are the exact taxpayers who will have the lowest level of personal retirement savings and will also be the taxpayers most likely to retire early.

      ____

      Byrnes: Raising full retirement age doesn’t mean that taxpayers cannot claim benefits early. They can still claim a reduced benefit early and, presumably, collect that benefit over a longer period of time to supplement their otherwise available retirement income. We all know that we can’t control our health, so this continues to provide a safety net for taxpayers who have to retire earlier than expected due to factors beyond their control.

      Bloink: But that’s just it—these taxpayers would actually get a smaller slice of the Social Security pie than wealthy taxpayers who work in less labor-intensive jobs, because they’d be forced to claim a reduced Social Security benefit if they couldn’t keep working until age 68, when full benefits would become available. It’s a covert way to benefit the rich at the expense of less wealthy American taxpayers, and is not the way to go about saving the Social Security benefit system.

  • 0019. Part Time Participation

    • The House recently passed the SECURE Act, which contains significant retirement-related amendments that would have widespread impact on taxpayers’ retirement planning initiatives. One of those amendments would change the current rules governing participation of part-time employees in employers’ 401(k) plans. Under current law, part-time employees who work less than 1,000 hours per year for an employer can usually be excluded from participation in that employer’s 401(k). The SECURE Act would change that rule and require either a one-year of service requirement where employees work at least 1,000 hours during that year to gain eligibility or a three-year of service requirement where employees work at least 500 hours for each of three consecutive years.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the potential impact of this change to the 401(k) eligibility rules.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: This change to the 401(k) rules is an important step toward ensuring equality in 401(k) participation eligibility and also a valuable way to encourage greater levels of retirement savings among the taxpayers whose only realistic savings option may be the employer-sponsored plan. Part-time workers should not be prohibited from participating in a valuable employer-sponsored 401(k) simply because the employer only employs them on a part-time basis.

      Byrnes: The reality is that the tax code currently allows employers to exclude part-time workers from 401(k) participation because of the administrative difficulties that would arise if the employer was required to include every single worker in this employment benefit arrangement. Requiring an employer to allow participation for employees with as few as 500 hours worked per year would make these plans substantially more difficult for the employer to administer, meaning that some employers might forgo offering the savings option in the first place.

      ____

      Bloink: Requiring employers to allow part-time employees to participate in 401(k) savings options would create additional administrative burdens, but burdens that are well worth it in the long run. Part-time employees are often women who work on a part-time basis to care for family or lower income workers who simply cannot find full-time employment with any single employer. Giving these employees—who are also valuable to the employer from a business perspective—savings options promotes equality and will help everyone in the long run.

      Byrnes: Many small business owners employ workers on a part-time basis because they only need those employees on a part-time basis, or because they don’t have the revenue necessary to provide comprehensive employment benefits to more expensive full-time employees. This provision increases the cost to employers in such a way that I actually think we will see less savings options for employees of small business owners in the long run.

      ____

      Bloink: Excluding part-time workers who have worked with the employer for a certain period of time is essentially a method of backdoor discrimination. We have extensive rules preventing discrimination of non-highly compensated full-time employees. Allowing the employer to simply employ multiple part-time employees basically gives the employer the option of excluding non-highly compensated employees from participation entirely, and so circumvent the nondiscrimination rules that provide important safeguards under current law.

      Byrnes: Small business owners are under no obligation to offer employees a 401(k) savings option. These business owners have various retirement savings vehicles at their disposal that are less expensive to administer and can be established solely for the employer, to the exclusion of all employees. If 401(k) plan options are prohibitively expensive, we’re providing an incentive for these employers to shift their savings options away from providing for both employee and owner, and providing a disincentive for more widespread savings.

  • 0020. Multiple Employer Plans (MEPs)

    • Although the specific details of the two retirement-related plans making their way through Congress have yet to be reconciled, it is likely that some form of retirement reform will become law in the near future.  Both the SECURE Act and RESA have provisions that would expand the availability of multiple employer plans (MEPs), allowing two or more otherwise unrelated employers to join together in offering a pooled employer plan, which is actually a new type of MEP.  Under those plans, a pooled plan provider would actually be the formal plan sponsor, while the employers participating in the plan would be subordinate.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential impact if the expanded MEP rules are contained in the final version of the new law.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: This is exactly the kind of innovation that we need to expand access to retirement savings options for all taxpayers—not just taxpayers who happen to work for large corporations.  Small business owners are often hesitant to establish their own retirement savings plan options because of the costs and perceived administrative burdens associated with these plans.  Expanding the MEP rules provides a lower cost option to encourage savings at all levels, and this would give millions more access to employer-sponsored retirement savings options.

      Bloink: On the surface, expanding the MEP rules to allow unrelated small business owners to join together seems like it would be a good idea.  When you did a little deeper into some of these MEP rules, however, the advantages begin to be outweighed by the potentially serious problems.  The complex fiduciary issues that would be posed by delegating so much authority might outweigh the benefits in today’s fiduciary environment.  In reality, this expansion is just a way for the financial services industries to reap an even larger profit off of hardworking Americans’ retirement savings.

      ____

      Byrnes: Some option is better than no options.  Yes, ultimately, the overarching plan sponsor will charge fees for their services with respect to the MEP, but there’s nothing new about that.  All employer-sponsored plans come with fees for the important investment advisory services provided at the sponsor level.  That’s not a reason to take this option off the table.

      Bloink: Small business employers currently have a wide variety of low-cost options for providing retirement savings plans to employees.  Index-based funds and technological advances make it easy for employers to offer a 401(k) option to employees without delegating so much discretion to the pooled plan provider in making investment decisions that can impact the retirement income security of millions of working Americans.  We’re opening the door to future trouble with the system proposed in this new legislation.

      ____

      Byrnes: No one is saying that the pooled plan provider would be immune from fiduciary regulations.  At that level, a fiduciary responsibility to act prudently in the ultimate retirement saver’s best interests would clearly apply to prevent the types of abuses that Professor Bloink is concerned about.  And sure, employers do have low cost options, but so many of these employers continue to avoid offering a 401(k) option because they don’t want to take on the fiduciary responsibility themselves.  This would alleviate the risk to a certain extent and encourage greater retirement savings generally.

      Bloink: I think we can do better than the options offered under the currently existing legislation.  I do understand that some employers don’t want to take on that risk, but this legislation is simply a nod to the financial service industry’s lobbyists.  The MEP proposal essentially creates a new layer of authority, which means an extra level of fees that will apply in administering these plans.  The potential for abuse is too great without significant safeguards, details with respect to which seem to be entirely lacking.

  • 0021. Regulation Best Interest (Regulation BI)

    • The SEC recently passed the much-debated Regulation Best Interest, which is the SEC version of the DOL fiduciary rule (which has been vacated entirely by the 5th Circuit in the time since its controversial enactment). Regulation BI, as the rule is known, establishes a standard of conduct that investment advisors and broker-dealers must adhere to in their dealings with retail investment customers. The rule applies to a variety of transactions involving securities, and was also expanded to include rollover transactions that involve recommendations with respect to potential securities transactions.  In general, the rule requires that the advisor have a reasonable basis for believing that the rollover is in the client’s best interest before making the recommendation and that certain conflicts and compensation structures be disclosed to clients.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the newly released rule and its potential impact.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: Regulation BI will undoubtedly create substantial compliance challenges for broker-dealers and others who become subject to the rule, including the firms for which they work. Despite this, it was obvious that we needed to enact some sort of rule to ensure that investors are protected when relying upon the advice of a trusted advisor. This rule accomplishes that without creating some of the more severe hardships that would have arisen under the old DOL fiduciary rule, so I think we’re on the right track.

      Bloink: Regulation BI is a shell of the old fiduciary rule—meaning that the rule doesn’t go nearly far enough to establish adequate safeguards for retail investors. We’re talking about individual clients who may rely entirely upon the advice of their advisor in making all financial decisions. They place their hard-earned savings in the hands of the advisor, who should be held to the highest duty of care when it comes to protecting those assets.

      ____

      Byrnes: This package of legislation significantly heightens the duty of care that broker-dealers will now owe to their clients. These professionals will be required to act in their clients’ best interests, which is a clear standard and exactly what we’ve wanted all along.

      Bloink: Unfortunately, Regulation BI is unlikely to accomplish the goal of providing clear and unambiguous protections for investors. The package of rules might be hundreds of pages long, but it fails to prohibit conflicts of interests in any real manner. For example, the client can consent to the conflict based upon the advisor’s disclosure in a document that might be entirely too complicated for the typical retail investor to even understand. Further, will the client even read the document that contains the disclosure before “consenting”? Why not prohibit broker-dealers from providing conflicted advice that might harm the client in the first place?

      ____

      Byrnes: The rule mandates certain disclosures that must be made to the client—meaning that conflicts must be clearly disclosed. The broker must also disclose his or her compensation structure to the client, so that conflicts cannot be hidden. This regulation ensures that all investors will have access to the trusted financial advice that they need to make important decisions regarding their financial future.

      Bloink: The rule doesn’t even clearly delineate who will be subject to the new “best interest” standard—broker-dealers and registered advisors, sure, but what about the myriad of advisors out there who won’t technically be regulated by this rule, but hold themselves out as advisors to clients? At worst, this “Regulation Best Interest” will lull investors into a false sense of security over the duty owed to them by their financial advisor—many will believe that because the advisor must disclose compensation practices and potential conflicts, that the advisor will not provide conflicted advice. The rule potentially opens the door for advisors to provide harmful and conflicted advice to clients while simultaneously obtaining the SEC’s blessing because they’ve “disclosed” the conflict in some sort of documentation.

  • 0022. Buffett Rule

    • Democrats in Congress have introduced a so-called “Buffett Rule” for consideration via the Paying a Fair Share Act, which proposes changes designed to ensure that multimillionaires pay at least a 30 percent federal income tax rate.  The bill is referred to as the Buffett Rule because multimillionaire Warren Buffett has often pointed to the inequities in the federal tax system, which can allow wealthy taxpayers to significantly and legally minimize their tax liability to the point where they pay very little tax at all.  The new rule would apply to any taxpayer with annual income of $1 million or more, considering regular wage income, capital gains, dividends and other sources of income, and would provide for phase-in rules over the second million worth of income that the taxpayer earns.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the viability and potential impact of implementing a “Buffett Rule”.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: Eliminating legal loopholes in the income tax code should be a high priority for anyone who is concerned with equality in the tax system.  This bill is clear cut, and I even think that the 30 percent requirement is reasonable—we aren’t eliminating all tax preferences, and the bill would take steps to continue to encourage charitable giving.  Wealthy taxpayers are too often able to unfairly exploit the tax system so that they pay no income taxes whatsoever—a result that is patently unfair, allowing the super-rich to become even richer at the expense of the American people.

      Byrnes: No one would deny that our current tax code presents opportunities for wealthy taxpayers to minimize their overall tax liability.  But we need to remember that these tax preference items aren’t just randomly thrown into the code to help the rich get richer.  Deductions, credits and other tax preferences are designed to encourage some sort of policy goal or behavior—they are carefully debated and considered, and even then contain safeguards designed to prevent abuse.  A bill designed to impose a flat 30 percent tax in all situations is completely unworkable and I would doubt that we see this become law.

      ____

      Bloink: The fact is that the 2017 tax reform dramatically favored the wealthiest Americans at the expense of the middle and working class families that it purported to support.  This rule as currently proposed contains detailed instructions as to how the tax would be calculated—including subtracting a portion of the taxpayer’s charitable contribution from total income in order to continue to encourage socially responsible behavior.

      Byrnes: What this tax does is add another layer of complexity to an already complex tax code that we’ve been fighting to simplify for years.   Consider the impact on the small business owner with more than $1 million in income—is that individual wealthy?  Maybe, but not necessarily in today’s economy.  That small business owner is rightfully entitled to all of the tax preferences that we’ve carefully created in order to encourage the taxpayer to continue providing employment opportunities and contributing to economic growth.

      ____

      Bloink: The only purpose of this Buffett Rule is to prevent abuse of the tax code.  High earning taxpayers who pay their fair share of taxes already won’t become subject to the tax because taxes, including self-employment taxes, already paid are subtracted from the amount that would be owed.  Assuming the high earning taxpayer is paying his or her fair share, the new tax wouldn’t be an issue at all.  Further, this tax phases in for taxpayers with between $1 million and $2 million in tax liability—taxpayers who would be subject to a tax rate in excess of 30 percent under the current income tax system if they were paying their fair share of taxes to begin with.

      Byrnes: Democrats seem committed to undoing the good that we did with the 2017 tax reform package—increasing the tax liability of the very group of Americans who are investing in our economy and creating jobs for other taxpayers would eliminate incentives for the very behavior that is making our economy as strong as it is today.

       

  • 0023. Annuity Safe Harbor

    • The SECURE Act would implement many amendments to retirement account rules designed to encourage retirement savings and retirement plan offerings. One of those amendments would aim to make it easier for retirement plan sponsors to give plan participants the option of purchasing an annuity within their 401(k) account in order to provide a pension-like stream of income throughout retirement. While easing participant fears of running out of retirement funds has always been a goal, many plan sponsors avoid offering annuity options because of the potential fiduciary liability associated with the annuity itself. Because the ongoing monitoring requirements that would otherwise apply have tended to prevent the 401(k)-annuity investment option, the SECURE Act would provide a safe harbor for plans that did provide an annuity option.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the potential impact of the safe harbor rule.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: I think the safe harbor is absolutely necessary because we need to do everything we can to encourage taxpayers to purchase guaranteed lifetime income products. Americans are living longer than ever and very few now have access to a traditional pension plan that would provide a steady stream of income throughout their entire retirement. Even more concerning is the number of Americans who don’t have the necessary savings to live in the style that they are accustomed to throughout a retirement that could last decades. The annuity option can provide a solution to all of these problems.

      Bloink: I do agree with Professor Byrnes that we need to provide 401(k) participants with the opportunity to invest in annuities for lifetime income protection purposes. Where I diverge is in this safe harbor rule. The safe harbor basically eliminates the plan sponsor’s ongoing fiduciary responsibilities with respect to the annuity product, giving the sponsor very little incentive to thoroughly vet the annuities that it allows in its 401(k) plan—in other words, this safe harbor creates conditions where it’s likely that an unsophisticated 401(k) participant could purchase an annuity that’s not what the participant really needs.

      ____

      Byrnes: If we don’t eliminate the onerous fiduciary requirements with respect to ongoing monitoring of these annuity products, we’re never going to see these valuable tools show up in 401(k)s. The DOL fiduciary rule is gone for now, but it’s likely to be revived shortly in some form—with all of this intense regulation at the agency level, plan sponsors can’t risk potentially becoming embroiled in ongoing litigation as a result of the annuity product offering. The safe harbor requires the plan sponsor to do the necessary due diligence upon selecting the annuity—with a seven-year lookback period into the annuity provider’s history and financial stability.

      Bloink: What Professor Byrnes is overlooking is the extreme complexity of annuity products in today’s market. What this safe harbor does is open the door for allowing overly complex and unnecessarily expensive annuity offerings into the 401(k), and because the plan sponsor has no ongoing fiduciary responsibilities with respect to these offerings, we could see financially unsophisticated participants locking themselves into annuity products that they don’t even fully understand. Fiduciary liability exists exactly to protect investors against this potential outcome, and I don’t think we should eliminate the plan sponsor’s responsibilities with respect to an issue that’s so important for so many.

      ____

      Byrnes: Many Americans don’t have the option of purchasing an annuity outside of a 401(k) as it is—because the employer-sponsored 401(k) is their only significant savings tool. The unfortunate reality is that while plan sponsors can give participants the tools they need for a successful retirement, they usually don’t because they’re afraid of being sued by plan participants when they don’t like the option’s performance down the road. We need to eliminate this risk in order to give participants an option—and remember, it’s just an option, participants would not be required to purchase the annuity.

      Bloink: What we need are adequate safeguards with respect to these product offerings. Yes, in some cases people have to tap their retirement funds as the only option for purchasing a product like this. But do we really want to make it easier for 401(k) participants to purchase potentially unsuitable products that they may not even fully understand? It’s the plan sponsor’s duty to protect participants’ 401(k) assets to the extent possible—we know the system isn’t perfect, but removing a critical layer of investor protection is not the way to fix the problem.

  • 0024. Newly Expanded HRAs

    • Upon executive order from the Trump administration, the DOL, Department of Health and Human Services (HHS) and Treasury developed a new set of rules to expand employer options for providing individual health insurance coverage via HRAs. These HRAs, known as individual coverage HRAs, will be permitted to reimburse employees for the cost of health insurance premiums purchased through the online health insurance marketplace if certain conditions are satisfied. This represents an expansion of prior law, under which employers generally could not reimburse employees for individual health insurance premiums via the tax-preferred HRA structure because HRAs were deemed to fail certain prohibitions imposed by the ACA with respect to annual and lifetime benefit limits.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the potential impact of the newly expanded HRA rules going forward.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: This HRA expansion provides a great incentive for employers to provide health insurance coverage on a less expensive, tax-preferred basis. We have to be realistic—we’re very likely going to see the entire Affordable Care Act struck down soon. These individual coverage HRAs can offer a less expensive, tax-preferred method for providing employer-subsidized health insurance to employees who might otherwise lose the employer-sponsored option completely.

      Bloink: The problem with the new HRA rules is that they are likely going to cause those individual health insurance premiums to skyrocket, as employers have a huge incentive to push sicker or older workers into these individual coverage HRAs rather than providing them with traditional group health coverage. Sure, the individual coverage HRA would be less expensive for the employer, but would the employee even be able to afford the individual health insurance coverage? This is just a workaround so that employers don’t really have to comply with the employer mandate.

      ____

      Byrnes: We should be focused on the fact that more employees are likely to receive some sort of employer assistance to pay for health insurance coverage under the new rules. Even more relevant is the fact that the rules contain detailed safeguards designed to prevent the situation Professor Bloink is describing. Employers are required to offer individual coverage HRAs on a group-by-group basis, based on specifically permitted employment classifications like part-time vs. full-time workers or new hires.

      Bloink: The safeguards are patently insufficient to prevent discrimination based on health status. We all know that older workers tend to cost more when it comes to group health insurance coverage—in many cases, the employer can manipulate the classification system to push these workers onto the individual marketplace. New hires tend to be younger in many employment situations; established full-time employees are likely older workers with family coverage. The potential for abuse seems crystal clear from my perspective.

      ____

      Byrnes: We can’t assume that employers are going to abuse the system put into place and should focus on the fact that these expanded HRAs encourage more employers to help with health insurance costs. Isn’t that what everyone wants in the long run? I’m not saying it’s a conclusive solution to replace the ACA, but it’s a step in the right direction toward providing employers with more options and employees with more choices. The safeguards are detailed and even provide a rule that differing contributions based upon age cannot vary by more than 3:1.

      Bloink: Speaking of more choices, the introduction of the excepted benefit HRA that can be used to purchase short-term health insurance rather than comprehensive health coverage presents even more problems. So these excepted health benefit HRAs can be used to fund limited, short-duration health coverage that actually provides very little in terms of benefits—and the employee isn’t even required to enroll in the employer’s group coverage to take advantage of that? Not only will this new regime push older, sicker workers onto the health exchanges, but it will encourage employees to purchase health coverage that is far from comprehensive. The new option might be great for employers not otherwise required to provide health coverage, but it shouldn’t give larger employers a way to circumvent the ACA mandate.

       

  • 0025. Tax Extenders

    • The House Ways and Means Committee recently approved a proposal that would renew several tax breaks, known as “tax extenders”, both retroactively for those that had expired in 2017 and 2018 and also through 2020. The proposal, however, would pay for the tax extenders by accelerating the “sunset” provision that was built into the new tax law with respect to the significantly increased transfer tax exemption. By way of background, the 2017 tax reform legislation roughly doubled the transfer tax exemption (to $11.4 million in 2019), with the caveat that the increase would sunset (expire) after 2025. The new proposal would accelerate that sunset provision to January 1, 2023.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the extender provisions generally, as well as the viability of funding their extension by cutting the transfer tax exemption back to pre-reform levels of roughly $5.6 million per person.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: This is a great way to get us back on track with respect to tax extender provisions that we’ve neglected for far too long. Even though tax extenders are usually left temporary because of budgetary constraints and political issues, the bottom line is that all of these provisions are designed to encourage some sort of policy that we want to see in action—whether it be to encourage homeowners to carry mortgage insurance or encourage environmentally friendly investments. By allowing the extenders to expire for such a significant period, we leave everyone facing unnecessary uncertainty with respect to the potential tax impact of their actions.

      Byrnes: First, we should get rid of half of the tax extenders anyway. They present a burden that we have to face year after year, and the fact is that many of these tax extenders aren’t even relevant in today’s strong economy—while some, of course, continue to be important. Moreover, the new proposal doesn’t address the overarching problem, which is determining which extenders should be made permanent and which should be allowed to die. Of course, funding the extenders by accelerating the transfer tax exemption sunset is never going to happen and is just another Democratic ploy to undo a tax reform package that’s working.

      ____

      Bloink: Professor Byrnes’ second point is misguided–using the transfer tax exemption to fund the renewal of extenders is the perfect solution. It both rolls back a part of tax reform that blatantly favors the super-rich “one percent” and funds incentives that are important to the general public, the country and even the world environment. I do have to agree that he is right with respect to the need to provide certainty to taxpayers in the form of making these important initiatives permanent.

      Byrnes: Professor Bloink is missing the point on my argument. Half of these tax extenders provisions are nothing but corporate welfare and are unjustified in light of today’s strong economy. We should let those provisions die so that we aren’t forced to reconsider them year after year, wasting our time with insane ideas about raising the death tax once again to pay for such blatant corporate welfare.

      ____

      Bloink: What Professor Byrnes calls “blatant corporate welfare”, I call carefully constructed provisions to provide tax incentives in order to encourage responsible behavior. Tax reform essentially eliminated the estate tax for the ultra-wealthy by increasing the transfer tax exemption to such an outrageous level–$22.8 million per married couple can be shielded from all transfer taxes in 2019. All that does is encourage dynasty building—it keeps the wealth tied up among the top one percent of families in this country at the expense of hardworking American families and the country as a whole.

      Byrnes: Well, I’m all for repealing the death tax altogether—a tax designed to punish someone for dying is unjustified in my opinion. The fact is that most tax extenders are unnecessary right now and we should let them expire, or at very least consider a bill that carefully weighs the benefits and burdens that each individual extender presents rather than blindly continuing to renew these antiquated provisions year after year, looking to increasingly crazy ideas for funding their existence.

       

  • 0026. Social Security Funding Proposals

    • As the continued solvency of the Social Security fund continues to be an issue, several Democrats have proposed various solutions for shoring up the system to ensure sufficient funds for years to come. One such proposal involves increasing the federal estate tax and using the increased revenue stream to fund Social Security. The current proposal would reduce the transfer tax exemption (which would apply to post-mortem gifts) to $3.5 million per individual ($7 million per married couple) and increase the current maximum Social Security tax rate from 40 percent to 45 percent. The proposal would also decrease the exemption for lifetime gifts (which is currently combined with the exemption for post-mortem gifts) to $1 million per person ($2 million per married couple).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their views on the proposal’s potential impact and likelihood of becoming law.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: This proposal is an all-encompassing reform of the current transfer tax system and would provide much-needed change to ensure that all of our nation’s hardworking retirees are protected financially. Far too often, the wealthy are able to escape transfer taxes entirely by engaging in complex estate planning techniques that are effective in reducing the total estate to well below the currently exorbitant $11.4 million per person transfer tax exemption. This new proposal would be a step in the right direction toward preserving Social Security for future generations.

      Byrnes: As I’ve stated repeatedly in the past—this is beginning to feel like déjà vu—this is yet another Socialist ploy by Democrats to impermissibly redistribute wealth in this country through increasing the death tax. Yes, we do need to take steps to shore up Social Security for the future, but taxing hardworking Americans even more is not the solution. Perhaps cutting back on waste and generally inefficient welfare programs would do more to benefit the greater good than punishing Americans for their financial success.

      ____

      Bloink: The wealthy just saw an unprecedented tax cut in the form of the 2017 tax reform legislation. The transfer tax exemption was doubled, meaning that the estate tax is currently providing very little in the way of revenue. Social Security is a program that impacts the entire nation. We cannot have a strong economy without a strong middle class, and that includes the generations of taxpayers who have already paid into the Social Security system and could potentially see their investments diminished significantly. We have to take action now to protect the legacy of Social Security and it’s time that the wealthy did their part.

      Byrnes: And why wouldn’t the truly “super-rich” simply engage in even more complicated estate planning strategies to escape an even higher estate tax on an even larger portion of their hard-earned wealth? The proposal is inequitable on its face—the wealthy themselves have already paid their fair share into the Social Security system—but it’s also completely unworkable and isn’t going to generate the revenue necessary to help shore up the system.

      ____

      Bloink: The amount of energy Republicans spend trying to defend the super-rich taxpayers who would rather pour their resources into developing strategies to skirt the system and avoid paying their fair share is disturbing. It’s time to admit that the number of families that would even be subjected to the estate tax on assets valued at over $7 million is extremely small. This elite group is also uniquely positioned to be able to afford the kind of advice that makes circumventing tax possible. We need to crack down and require these taxpayers to pay their fair share for the greater good of the country and the economy as a whole.

      Byrnes: I think Professor Bloink and I will have to agree to disagree on this one. Each and every incantation of these “wealth taxes” and death tax reform are subtly different but broadly the same. We live in a country founded upon achievement, and the basic premise behind that is that the government should not be able to impose outrageous taxes that take away the benefits of that achievement. A proposal that would increase taxes beyond the already high tax rates we have in this country for the wealthy to redistribute that wealth to others discourages achievement and, in my view, is anti-American at its core.

       

  • 0027. HSA Expansion

    • The Trump administration has issued another executive order that would expand the use of health savings accounts (HSAs) as options for employers to provide tax-preferred savings in connection with the use of high deductible health plans (HDHPs). The executive order specifically directs that the definition of “preventative care” associated with HDHPs (i.e., care that can be obtained before reaching the deductible) be expanded to include care associated with certain chronic illness. The order would also direct that certain nontraditional healthcare arrangements be categorized as qualifying medical expenses for purposes of the reimbursement rules.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the advisability of making HSAs a more central component of more taxpayers’ overall health planning strategy.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: Health savings accounts provide a triple-strength tax benefit that cannot possibly be underestimated—the funds are contributed tax-free, they can be withdrawn tax-free for qualified medical expenses and they grow tax-free over time if not withdrawn right away. I think that we should do everything that we can to expand the use of these vehicles and Trump’s executive order encourages just that—we’ve already seen the list of covered care expanded, so I’m on board.

      Bloink: HSAs are great, sure, and do provide significant tax benefits when used as intended or even to fund post-retirement medical expenses. In that respect, I do agree that the expansion is a positive in some cases. Despite this, I have my misgivings because the HSA can only be used in conjunction with the HDHP, with is a significant con. In fact, recent studies show that HSAs aren’t at all being used by middle and lower income families in the way they were intended because those families don’t have the extra wealth to fund the accounts adequately. I think we need to take a closer look at expanding a tool that really isn’t working as it should be without first acknowledging and addressing the underlying problems.

      ____

      Byrnes: I can’t see any reason for opposing the expansion of HDHPs and HSAs to cover medical care related to chronic conditions—in fact, I think we should do more to encourage these accounts to cover all of a taxpayer’s medical expenses! It’s a great tool to help small business owners provide health coverage options even when they aren’t legally required to do so under the ACA.

      Bloink: The issue that I can’t get past is that the HSA has become more of a tool for the wealthy to increase their tax-free savings stash. Studies have shown that, in reality, most taxpayers cannot afford to fully fund their HSA, and end up stuck with a high cost HDHP and an inadequate corresponding HSA benefit. HSA contributions are limited as to the level of tax-free funds that can be added each year, but there’s no requirement that the employer actually maximize every employee’s HSA to back up the added HDHP costs that come with this dual model.

      ____

      Byrnes: And yet safeguards are in place to ensure that employers don’t discriminate in favor of high-income employees in funding HSAs across the board, which is a powerful check on the ability of HSAs to favor the wealthy disproportionately.

      Bloink: The bottom line is that we shouldn’t be focusing on expanding the rules to give the wealthy yet another way to circumvent paying their fair share of taxes. Coverage for care associated with chronic illnesses, that’s great—but the particular expansion contemplated by Trump would also likely allow HSAs to be used to fund the type of concierge health care that’s only accessible to the super-rich who, in reality, don’t have to rely upon the high-cost HDHP to obtain quality healthcare at all. What we should focus on is expanding the value of the HSA-HDHP strategy to ensure that all Americans benefit and decreasing the cost of health coverage across the board—essentially, this is just another one of Trump’s distraction techniques.

       

  • 0028. Biden Plan for Improving the ACA

    • Democratic presidential hopeful Joe Biden has released his plan for improving the Affordable Care Act (ACA) to provide more valuable tax credits to certain taxpayers should he be elected in 2020. Biden’s proposal would also eliminate the currently applicable income-based threshold that prevents certain families from qualifying for premium tax credit assistance when household income exceeds 400 percent of the poverty line, based upon family size. Further, Biden’s plan would lower the percentage of income threshold so that taxpayers would not be required to spend more than 8.5 percent of their annual household income to pay for health insurance coverage (down from the 9.78 percent threshold that will apply for 2020).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions as to the impact that Biden’s proposal would have on the ACA and the healthcare system in general.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: I’m all for Biden’s plan to strengthen the ACA. One of the primary concerns that ACA critics have is that the cost of health insurance remains unaffordable for many taxpayers under the law. Biden’s plan addresses this concern on several fronts and would expand the availability of assistance for taxpayers who are unable to afford comprehensive health coverage so that more Americans are able to remain covered.

      Byrnes: Once again, the problem is that Biden’s entire ACA proposal rests upon repealing the valuable tax cuts that have made our economy as strong as it is today. Modifying a health insurance law that isn’t working is not the answer here, especially when we have to raise taxes on hardworking Americans to subsidize the health insurance costs of others. We need to scrap the ACA entirely and start over to get to a system that works for all Americans without raising the taxes that we lowered less than two years ago.

      ____

      Bloink: One source for funding this plan involves penalizing prescription drug companies that engage in abusive pricing practices—so Biden’s plan doesn’t rest entirely upon eliminating the recent tax cuts, but it does rely upon making sure that wealthy taxpayers in this country pay their fair share. Closing tax loopholes so that we can make sure all Americans have access to comprehensive health insurance coverage seems fair to me—why should the wealthy use their funds to engage in tax evasion maneuvers at the expense of those Americans who do pay their fair share of taxes and still can’t afford the cost of health insurance that covers their basic needs?

      Byrnes: When the primary source for funding a plan like this involves increasing taxes on hardworking Americans, I throw up my hands. This is yet another plot by the Democrats to redistribute wealth in this country so that hardworking taxpayers are required to shoulder the health insurance expenses of everyone else. I think that in a few months, when the Fifth Circuit has finally invalidated the ACA, we’ll be having an entirely different conversation about starting over with a health insurance plan that works for all Americans.

      ____

      Bloink: If we scrap the ACA, what do we have left? The GOP argues that we should start over, but there is currently no workable alternative solution. If we eliminate the ACA entirely, millions of taxpayers could go uninsured without the government subsidies and tax credits that allow them to purchase coverage in the first place, meaning that the “hardworking taxpayers” Professor Byrnes refers to are still left to shoulder the cost of other taxpayers’ health care in the form of increased health insurance premiums for everyone—let’s be clear, even those without health insurance must seek medical care when necessary, and we all know that the insurance companies are not going to absorb the cost of those unpaid healthcare bills.

      Byrnes: This is why we need to provide Americans with options that they can afford so that they have the coverage that they need. Not every taxpayer needs a comprehensive—expensive—health insurance plan. Some would prefer alternative solutions to funding their health insurance costs, all of which the Democrats rail against. Forcing one type of coverage on all Americans is how we got here in the first place, and we need to take a step back and examine potential solutions from square one.

       

  • 0029. Final MEP Regulations

    • The Department of Labor (DOL) has released the long-awaited final rule governing the expanded availability of multiple employer plans (MEPs) to offer a potential new retirement savings plan option for smaller business owners. Under the new rule, the definition of which employers are permitted to join together to offer a single retirement plan to their employees was expanded so that it is now possible for employers who share only a geographic nexus to pool employee contributions into a single 401(k) or profit-sharing type retirement plan. Under prior rules, it was widely understood that employers were required to share some stronger commonality, such as operating in the same industry, in order to form MEPs. However, the final rule did not contain a provision permitting “open MEPs”, which require that the only commonality of interest shared by the participating employers is their interest in offering the MEP.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the final MEP regulations and their potential impact on the small business retirement savings landscape.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: Countless employees lack employer-sponsored retirement savings options in this country and because of this, often fail to save for retirement entirely simply because their employer is too small to take on the burden of offering a traditional 401(k) savings option. The final MEP regulations significantly expand the availability and accessibility of 401(k)s by allowing multiple employers in the same region to share in the cost and administrative burden of offering their employees a valuable retirement savings tool. I can’t see a negative there.

      Bloink: Of course, I agree that employees of small business owners should have access to employer-sponsored retirement savings options to encourage responsible saving for the future, but I don’t think these final regulations cut it. Essentially, the new rule goes too far and yet not far enough. The rule creates a confusing fiduciary concept that allows the employer to escape some fiduciary liability, but perhaps not all fiduciary liability—creating a situation where employers may be reluctant to join in on MEPs because of the uncertainty surrounding the liability issue, especially in our currently shifting fiduciary landscape.

      ____

      Byrnes: Employers will get over the fear of fiduciary liability in favor of adopting the MEP structure because of the powerful savings benefits that a 401(k) option offers. Our economy is strong, and employers need new ways to attract and retain top talent—hardworking Americans who expect a tax-preferred retirement savings option as a standard employment benefit. Even more so, the small business employer is motivated to save for his or her own retirement via the valuable tax-preferred 401(k) structure.

      Bloink: I don’t think that’s enough, especially because of the limitations on geographic scope that apply via these MEP regulations. What employers really wanted was the ability to join together with any other employer—regardless of location—in order to form the MEP. Limiting the MEP concept to employers in a single geographic region limits the pool of employers who may be interested in these plans despite all of the unanswered questions and concerns, meaning that the MEP is unlikely to take off in the near future.

      ____

      Byrnes: All that the final MEP rules do is give small business owners another retirement savings option. In my mind, the more retirement savings that we can encourage, the better. Whether we need to expand MEPs beyond geographic scope is a question for the future, once we’ve seen how employers are using these plans and what issues need to be addressed in conjunction with the MEP.

      Bloink: The bottom line is, we need something more concrete if we really want to encourage the pooling of small business employees’ retirement savings to accomplish the economy of scale benefits that the MEP rules are trying to address. We need to assure employees that their assets will be protected from a fiduciary standpoint and we need to give employers the certainty and options to really help these MEPs take off. If anything, the final MEP rules are a first step, but calling them “final” seems premature.

       

  • 0030. Proposed Legislation on Executive Compensation Deduction

    • Democrats in the Senate have recently proposed legislation that would further limit the ability of public companies to deduct executive compensation in excess of certain threshold limits. Under the plan, all publicly traded companies would be subject to a $1 million per employee cap on deductible compensation—regardless of whether the employee is an officer of the company or one of its most highly compensated employees. Under current law, only certain of the highest-ranking public company employees are subject to the cap on otherwise deductible compensation. The legislation would also authorize restrictions on the ability of public companies to use pass-through structures to avoid the $1 million per employee cap.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions as to the potential repercussions of this bill, as well as the likelihood that it will become law.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: This is exactly the type of legislation that we need to ensure that large corporations are paying their fair share. Corporations are able to skirt their tax liability in many cases by paying excessive compensation to their employees, who may even be partial owners of the business, and the current cap on deductible corporate compensation does not go nearly far enough to ensuring that corporations aren’t using compensation structures as covert tax loopholes.

      Byrnes: This piece of legislation is nothing more than another Democratic pipe dream–$1 million in compensation isn’t even excessive for those individuals working at the highest levels to keep our economy growing to generate jobs for the millions of Americans who depend upon the success of these companies for their livelihood.

      ____

      Bloink: Sure, there are any number of reasons why it might be beneficial for a corporation to pay an employee more than $1 million per year in compensation. What this legislation is designed to prevent, however, are situations where minimizing federal income tax plays a role in determining how much compensation an employee should receive. The bill doesn’t prevent companies from paying excessive compensation—or fair compensation, depending upon the skill and desirability of the employee. It only takes the tax deduction out of the mix when the company is determining how much any given employee is worth.

      Byrnes: We cap the compensation deduction for certain high ranking corporate officials for understandable reasons—when the company CFO is entitled to a huge corporate tax deduction for his or her own compensation, for example, incentive exists for manipulation of that compensation levels to minimize taxes and deliver better—but artificial—results to shareholders. That same concern doesn’t exist with respect to rank and file employees of public companies who can’t be similarly motivated to deliver inflated profit statements to investors.

      ____

      Bloink: But the motivation for manipulation of “rank and file” employee compensation as a tax savings tool continues to exist at those higher levels of corporate governance. Public companies have a duty to investors, and so should be focused on the value of the employee to the company—free of the motivation to reduce corporate tax liability. This legislation would simply ensure that companies are constructing compensation packages in a manner that corresponds to the value the employee adds to the company’s success.

      Byrnes: The bottom line is that we reduced corporate tax rates so that our U.S. businesses could compete on a global level without motivating these companies to move to low-tax jurisdictions, taking some of our nation’s best talent and prospects with them. This legislation is yet another attempt by the Democrats to circumvent the progress that our reduced corporate tax structure has provided and will continue to provide. Although they don’t want to say it, limiting the deduction for employee compensation in this way is nothing more than a disguised increase in the federal corporate income tax.

       

  • 0031. HSAs for Seniors

    • Health savings accounts (HSAs) provide especially powerful tax benefits because the accounts essentially establish a triple tax preference—pre-tax contributions, tax-free growth and tax-free withdrawals when funds are used to pay for qualified medical expenses. Under current law, however, taxpayers must stop making pre-tax contributions to HSAs once they enroll in Medicare—thus losing a substantial tax-preferred savings option unless the taxpayer is willing to risk potential lifetime penalties for late Medicare enrollment. A newly introduced piece of legislation sponsored by Democrats in the House would, however, allow taxpayers to continue to contribute pre-tax funds to HSAs even while enrolled in Medicare.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential consequences of changing this aspect of HSA funding going forward.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: I don’t see anything wrong with this bill. Like the current administration, I’m very much in favor of expanding access to important types of health savings vehicles like HSAs and HRAs. In my view, helping Americans save for a longer period of time to cover the cost of health-related expenses that they’re likely to incur later in life is a positive and also lets them continue to reap the powerful tax benefits of this type of account.

      Bloink: I’m actually fairly surprised that this bill was supported by Democrats. Sure, we should be focusing on additional ways to expand the tax benefits of these types of savings accounts so that we’re encouraging Americans to save as much as possible for expenses that we’re all likely to face at some point, but what people are overlooking is the fact that this bill would eliminate seniors’ ability to use the HSA funds to pay their Medicare Part B premiums. It seems like we’d be encouraging these taxpayers to contribute to a type of account that no longer strongly benefits them.

      ____

      Byrnes: But the HSAs would still be useful in that they allow tax-free withdrawals to cover health expenses during retirement. The reality of today’s world is that taxpayers are living longer than ever before, which means that many Americans actually enroll in Medicare before they even retire. We shouldn’t be taking away one of the most valuable health savings tools—from a tax perspective—before they’ve even retired.

      Bloink: The bill would also eliminate taxpayers’ ability to use HSA funds to pay for non-medical expenses after age 65 without penalty. Under current law, perhaps in recognition of the fact that Medicare covers a significant portion of a person’s medical expenses after age 65, these taxpayers can use the HSA to pay for non-medical expenses and simply pay income taxes on those withdrawals. The new bill would impose a penalty on top of the otherwise applicable tax liability.

      ____

      Byrnes: The HSA funds can be used at a time when, let’s face it, we’re all much more likely to incur more significant medical expenses. These taxpayers will continue to reap the significant benefit of making pre-tax contributions even after enrolling in Medicare. The likelihood that many seniors will incur the penalty for using the HSA funds to pay for non-medical expenses is slim: we all have medical needs and will all need care at some point.

      Bloink: The bottom line is that this new legislation is misleading in that it would encourage taxpayers to continue contributing pre-tax funds to a savings account after age 65 that is fundamentally different than the HSA of today. Medicare Part B is designed to provide comprehensive coverage to taxpayers after age 65 and, for many, that $135 a month Medicare premium is the only significant ongoing medical cost they’re going to incur. I’m completely in support of expanding access to health savings vehicles, but not at this cost to seniors. Not allowing HSA funds to be used to pay for Medicare is a deal breaker for me on this bill.

       

  • 0032. Proposed Payroll Tax Cuts

    • Recently proposed payroll tax cuts are one of the more controversial proposals designed to head off a recession and keep the economy growing steadily. President Trump has recently indicated that he might be amenable to implementing payroll tax cuts to prevent a recession and stimulate the markets, although it is far from clear whether that support is given unequivocally. Payroll taxes are split equally between employees and employers (self-employed workers pay both portions, but are then allowed a 50 percent deduction when they file their taxes). Historically, in an effort to spur consumer spending, President Obama used payroll tax cuts to give employees a 2-percent tax break on the employee portion of the tax during the last recession.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential impact and viability of a payroll tax cut as a means for preventing the economy from sliding into a recession.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: Payroll tax cuts—and tax cuts generally—provide a positive way to stimulate the economy and encourage consumer spending without the need to pass comprehensive, time-consuming tax reform. They are targeted at a specific goal—giving all American workers a break at a time when economic fears may be preventing consumers from spending. Payroll tax cuts have worked historically, and I think they would work again today.

      Bloink: First of all, the last time the government implemented a payroll tax cut, the economy was in an entirely different position. We were already deep into a lasting recession. Today’s market is extremely different. While the threat of another recession is real and present, there is no historical basis for saying that payroll tax cuts would do now what they did circa 2010. Further, these payroll taxes partially go toward funding Social Security—a system that is currently in crisis and needs to be shored up, not gutted by payroll tax cuts.

      ____

      Byrnes: Payroll tax cuts are meant to instill confidence in American consumers—to show them that the government is on their side and is willing to take all actions necessary to protect them from an economic downturn. Arguing that our situation today is not exactly the same as the situation during the recession is no proof that payroll tax cuts won’t work to give consumers the confidence that they need in today’s environment. Maybe if payroll tax cuts had been implemented sooner, our economy would have recovered much faster back in 2008.

      Bloink: We have no guarantees that these payroll tax cuts will give consumers confidence that will motivate them to go out and make large purchases or have faith in the markets. In fact, I think it’s just as likely that consumers who remember the job instability and market chaos of last recession well will simply put those extra dollars away in conservative investments or even keep the funds as cash for a rainy day. In the meantime, cutting payroll taxes will place undue and additional stress on the system that many Americans rely on for their future retirement security—not to mention increase the already-skyrocketing budget deficit and provide even more instability in this country.

      ____

      Byrnes: Tax cuts increase economic growth, which is exactly what we need right now. The payroll tax cut would place dollars directly into Americans’ pockets. If they choose to invest those funds in the stock market via additional contributions to a retirement savings or other type of account, it strengthens business in this country just as much as if they go out and support businesses by buying a new car.

      Bloink: I can’t agree that payroll taxes would have any significant impact right now. Regardless of what’s happening in the stock market, the job market in this country does remain relatively strong. Americans aren’t yet fearful for their job safety. More tax cuts aren’t going to be sufficient to give Americans confidence in this country once again—remembering that Trump pushed through a massive tax cut package less than two years ago. We need to instill confidence by offering reasonable, smart government and respect for this country’s institutions—Social Security and Medicare included—rather than rashly cutting taxes yet again.

  • 0033. The Dodd-Frank Wall Street Reform Act’s “Volcker Rule” Amendments

    • The Dodd-Frank Wall Street Reform Act’s so-called “Volcker Rule” was implemented to create a more strict compliance regime for big banks in light of certain trading practices that were discovered because of the recession that took place last decade. Recently, however, the FDIC voted to change some of the more onerous compliance requirements contained in the Volcker Rule, essentially providing that banks with less than $1 billion in “trading assets and liabilities” will be given a presumption of compliance, while banks with between $1 billion and $20 billion in assets will only be subject to moderate compliance requirements and banks with over $20 million will be subject to a six pillar compliance program. Further, the revisions change the definition of “trading account” so that more assets are able to escape the Volcker Rule’s compliance program.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential impact of amendments that have quietly been made to the Volcker Rule.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: If these amendments are seen as weakening the Volcker Rule, I’m all for them. We need to do everything we can to encourage economic growth to avoid sinking into another recession and put American investors in a stronger position on a global scale. By over-regulating big banks and financial institutions, we are creating a disadvantage for our institutions on a global level and loosening some of the more rigid restrictions of Dodd-Frank is a great start to encouraging more widespread economic growth.

      Bloink: These changes essentially gut the Volcker Rule and give big banks free reign to engage in speculative trading practices that got us into the last recession in the first place. The entire point of this rule and other regulatory requirements imposed under Dodd-Frank was to strengthen consumer protections so that we don’t have to go through another recessionary period where Americans lose their hard earned savings because of the shady practices of big banks. This is clearly a win for the banking lobby at the expense of the hardworking Americans who invest in this economy to keep America strong.

      ____

      Byrnes: We need to give our institutions the freedom to trade competitively without the overreaching compliance requirements that the Volcker Rule imposed. The rule hasn’t been gutted—substantial compliance requirements still exist, especially for the largest and most systemically important banks in this country, where a rigid compliance program with annual CEO attestations and metrics requirements continues to protect investors from the riskiest practices at the highest levels.

      Bloink: The rule and Dodd-Frank’s compliance requirements have never even been tested during a recessionary period—gutting it now, which is exactly what has been done, while we’re on the cusp of another potential recession, is the worst possible decision. Allowing banks to simply say that certain positions are not explicitly held for trading allows banks to escape the Volcker Rule entirely, based solely on their own attestation.

      ____

      Byrnes: Financial institutions in other countries aren’t required to comply with such strict and overreaching regulation. To avoid the next recession, we can’t overburden our financial institutions. We need to take steps to compete on a global scale and to do so, it’s important that we find a middle ground, which is exactly what the FDIC-approved change to the Volcker Rule does.

      Bloink: Under the amendments, the only assets included in the definition of trading account assets are those that the bank specifically lists on its balance sheet as trading assets and liabilities that are to be held for more than 60 days. The changes give big banks such significant leeway in avoiding the rule’s compliance regime that yes, the changes do essentially gut the rule at the exact time when we need to ensure that big banks aren’t taking inappropriate financial risks that jeopardize the financial security of everyone in this country.

  • 0034. Fee-Based Annuities

    • The IRS has recently issued private letter rulings (PLRs) to various insurance carriers confirming that advisory fees may be taken from nonqualified fee-based annuities without triggering a taxable event.  Fee-based annuities have surged in popularity following the release of the DOL’s fiduciary rule, which generally placed a spotlight on commission-based annuities and the potential conflicts of interest generated by the sale of these products.  Although the DOL rule has since been vacated, the fiduciary issue has remained in the spotlight, potentially motivating firms to develop more fee-based annuities to replace commission-based products. However, the issue of whether the fee was taxable when taken from the annuity remained unclear until the IRS’ recent rulings, which seem to clear the way for more widespread sales of fee-based annuities.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential impact of the IRS rulings.  

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes:  The IRS provided a much-needed clarification that encourages development of fee-based annuities, which provide a promising and necessary solution to the problem of widespread conflicted advice in the sale of annuity products.  We want to encourage people to take responsibility for ensuring that they have the lifetime income stream that they need in retirement, and I think we need to do everything we can to make annuities appealing to a broader range of taxpayers.

      Bloink: The problem that I have with these rulings isn’t so much about the guidance—allowing the client to avoid tax liability when it comes to paying a built-in fee for an annuity product seems fair in itself.  The issue has much more to do with the false sense of security that fee-based annuities give clients and advisors in general. These rulings essentially provide the green light for advisory firms to begin mass marketing fee-based annuities to clients in order to “solve” the problem of conflicted advice—which may or may not be the case.  

      ____

      Byrnes: The fiduciary issue isn’t going away and neither is the importance of planning for lifetime income given increased longevity rates.  These IRS rulings give taxpayers the certainty that they need with respect to an emerging product class—I think that confidence in these products is exactly what taxpayers need to encourage responsible long-term planning.

      Bloink: I worry that fee-based annuities seem to give advisors the green light to market these products without doing the due diligence necessary in every situation to ensure that the product is in the client’s best interests.  In some cases, the fee-based annuity model may even be more expensive in the long run despite the fact that the advisor isn’t receiving an ongoing commission. Commissions and advisory fees are only one piece of the puzzle, and simply clarifying that the fee doesn’t generate a taxable event when it’s withdrawn from the annuity funds is really only one very small consideration.

      ____

      Byrnes:  Of course, advisors need to do their due diligence to make sure the product is right for the client, but I think that removing the conflicts of interest issue from the equation is a very smart move on the part of insurance carriers.  Hardworking Americans deserve to have retirement security and should be able to get the products they need to ensure this without worrying about the advisor’s motivation in recommending the annuity in the first place.

      Bloink:  The bottom line for me is that fee-based annuities aren’t the solution in every case—even though they may provide the answer for some taxpayers.  We need to shine a spotlight on the fact that these products can come with high fees, sub-account charges, lengthy surrender periods and any number of features that might make them more expensive or otherwise inappropriate for clients in the long run.  My worry with respect to these rulings is that advisors and clients might zero in on fee-based annuities as some sort of magical solution because of a favorable tax outcome where, in fact, they might not always be in the client’s best interests.

  • 0035. SALT Cap Increase

    • The cap on the state and local tax deduction (SALT cap) is once again in the spotlight as several Democrats in Congress have announced that they plan to meet to discuss options for mitigating its impact. The SALT cap, which is technically set to expire after 2025, limits the federal deduction for state and local income, sales and property taxes to $10,000 per federal return. While the exact outcome of those discussions obviously remains unclear, the intent is to discuss proposals that would either increase the current t$10,000 ceiling on deductible state and local taxes or eliminate the cap altogether.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions and discuss the potential impact of increasing or eliminating the SALT cap earlier than scheduled.

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: The impact of eliminating the SALT cap entirely—or at the very least, raising it to a reasonable level so that middle class taxpayers struggling to live in high-tax states can take advantage of the deduction—will be overwhelmingly positive. Since tax reform was passed, the SALT cap has been one of the most controversial elements included because it creates significant inequality between taxpayers living in low-tax and high-tax states. If the goal is finding a way to once again level the playing field, I’m all for it.

      Byrnes: As I’ve said before, I disagree with Professor Bloink on this one—the SALT cap doesn’t create inequality; rather, the $10,000 cap actually encourages equal tax treatment for all taxpayers. Yes, it does raise taxes on some wealthier taxpayers—a result that the Democrats would usually seem to favor—but the same $10,000 cap applies to all households, regardless of where that household is located.

      ____

      Bloink: The SALT cap creates perverse incentives for taxpayers to waste valuable resources in order to relocate solely to find a taxing state where they would have lower state and local level tax liability. While it is true that everyone is subject to the same $10,000 cap, that $10,000 fails to account for the fact that many taxpayers in high-tax states are subject to state and local income, sales and property taxes that far exceed that seemingly random number.

      Byrnes: Democrats are always arguing that we should impose higher taxes on the wealthy—while the SALT cap isn’t technically a percentage increase, those with higher incomes and higher property values obviously pay more in state and local taxes than more moderate earning families. Because of the uniform cap, those taxpayers get a lower federal-level deduction and thus, are subject to higher federal income taxes with the SALT cap in place. The only way to eliminate the SALT cap—or raise the applicable “cap”—is to increase taxes on everyone—remembering that the purpose behind capping the deduction in the first place was to make room for the across-the-board tax cuts that the entire country has benefitted from under the 2017 tax reform package.

      ____

      Bloink: First, the SALT cap has a disproportionate impact on moderate-income families because wealthy taxpayers have the substantial funds necessary to engage in strategies designed to move their tax home (without actually relocating) or create trust structures to minimize the impact of the SALT cap. Second, we’re forgetting that the SALT deduction itself is imposed for an entirely reasonable purpose—to create fairness and prevent double taxation. Without the SALT deduction, taxpayers in high-tax states must first pay a portion of their income to the state or local government, and then are again subject to federal tax on funds they have already paid in taxes at the lower tier—a situation which creates a double tax solely based upon location.

      Byrnes: Eliminating the SALT cap would be a huge giveaway to the wealthy at a time when we can ill-afford to raise taxes to make up for that lost revenue. We need to focus on keeping our economy strong through tax stimulus for American business owners—the Democrats’ insistence on focusing on a single tax provision that actually promotes equal treatment among taxpayers at the federal level (remembering that states are free to tax as they choose) could create more economic problems than it solves.

       

  • 0036. State Fiduciary Impact

    • In the wake of the New York best interests “fiduciary” standard that took hold in the state in August, a host of insurance carriers have announced decisions to suspend sales of various annuity products in New York. The New York fiduciary standard generally requires that the sale of various financial products be in the consumer’s best interests and will take effect in stages. The rule now applies to annuity products and, beginning in February, will also apply to certain life insurance products (prompting some carriers to announce in advance that they will pull life insurance offerings in 2020). New York and many other states have introduced their own versions of a fiduciary standard after the nationwide Department of Labor standard was vacated by the Fifth Circuit.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the state level initiatives and the decision of major carriers to pull their products from these markets.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: This is a classic case of over-regulation at the state level and I think insurance carriers were more than justified in deciding to take their products off the market. State fiduciary regulations have already threatened to create a patchwork of regulation that simply creates too much risk for insurance carriers—and this hodge-podge of regulation is going to create even more problems once the DOL releases its new version of the nationwide fiduciary rule.

      Bloink: The problem is that the DOL hasn’t taken any action to release comprehensive guidance designed to protect consumers from annuity and life insurance products that are often far too complicated for the ordinary American to understand. These products are often marketed for the value they can generate for consumers—and I do believe that annuities and life insurance are extremely valuable planning tools—but advisors have to understand that every client is different in terms of risk tolerance and their actual financial goals. All these rules do is ask that advisors keep the individual client’s best interests at center stage.

      ____

      Byrnes: It’s essentially impossible for insurance carriers to satisfy a different fiduciary or best interests-type rule in every state in the country. The compliance costs associated with attempting to comply are obviously much too high for the insurance carrier, or they wouldn’t be halting sales on such a widespread basis. We need a single uniform rule that’s fair and realistically can be satisfied without crushing the business model of these firms.

      Bloink: It doesn’t make sense to me that these insurance carriers don’t step up to the plate and hold their producers to this best interests standard now. It’s fairly widely expected that the best interests standard is going to become the law of the land when it comes to complicated annuity products. Pulling their annuity products from the New York market in some type of protest doesn’t seem like a smart business move to me and also unfortunately removes potentially valuable annuity options for New York taxpayers.

      ____

      Byrnes: And I think pulling annuities now is a smart business move and sends a message that this type of over-regulation is unreasonable. Stepping into the hornet’s nest of potential liability that can be generated by selling a product that’s not in line with the strict language of the New York statute—which some are saying is even stricter than the old DOL fiduciary rule—simply isn’t viable for these insurance carriers until they’ve fully evaluated the rule and potential compliance issues associated with the new standard. At this point, I think all that these new state level initiatives actually do is eliminate options for clients who could benefit significantly from the availability of a wide variety of annuity and life insurance products.

      Bloink: The bottom line is that if the federal government isn’t going to step up and provide a much-needed rule with strong consumer protections, the states are going to have to do it for themselves. The reality is that, as more and more states come to this same conclusion and enact their own best interests standards, insurance carriers are going to have to realize that this is the new normal and they’re going to come back to the markets they previously abandoned. 

       

  • 0037. Capital Gains Plan

    • Democrats in the Senate have unveiled a new proposal that would aim to tax long-term capital gains at the same tax rates that apply to ordinary income. The ordinary income tax rates would apply in conjunction with a new tax system that would require investors to pay taxes annually on certain investments that are easily traded, such as stocks and bonds—rather than deferring tax on any gain based on those investments until the assets themselves are sold. “Non-tradeable assets”, such as real estate and interests in certain businesses, would also be subject to a lookback rule aimed at taxing gain annually to end deferral of tax on these gains. The new rules would only apply to taxpayers with at least $1 million in earned income for the year or, in the alternative, $10 million in assets—amounts that would be indexed annually for inflation.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the feasibility and impact of converting the lower long-term capital gains rates to those applicable to ordinary income.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Bloink: This type of taxing system is exactly what we need in order to end the dynastic system that allows wealthy families to avoid taxes entirely by simply holding onto their investments for years or even decades. While this proposal has many moving parts, when those distinct tax rules work together we can make substantial progress toward ensuring that the super wealthy are paying their fair share of taxes so that we can shore up essential programs, such as healthcare and Social Security, for the good of society and the economy as a whole.

      Byrnes: Taxing capital gains as ordinary income would be devastating for the economy and would do significantly more harm than good. All of the “wealth taxes” put forward by the Democrats are entirely unrealistic in that they would end up discouraging investment in our economy because they punish the hardworking taxpayers who invest in small businesses and fuel the growth needed to keep everyone else employed.

      ____

      Bloink: Income disparity in this country has reached an all-time high and is an issue that has to be dealt with now. Ending the ability of wealthy taxpayers to avoid paying taxes while the bulk of the nation struggles to pay for sub-par health insurance and our infrastructure crumbles is unconscionable. Under the current system, wealthy taxpayers get to shield a huge portion of their earnings—gains on investments—from taxation altogether. And when they do sell? They get to pay taxes at a rate that’s almost 20 percent lower than the rate that would apply to actual wages.

      Byrnes: In short, if enacted, this plan wouldn’t last for long. Wealthy taxpayers have the ability to ride out unfavorable tax environments and plan to avoid the bulk of the impact, but the real detriment would be to the rest of the economy that profits from the investments that higher income taxpayers make in our country.

      ____

      Bloink: Wealthy taxpayers aren’t going to pull their investments from the economy simply because they have to pay taxes on the gains on an annual basis—when you think about it, the taxes are still only a portion of their gains and everyone still makes a profit while we use the balance of the funds to make the country as a whole stronger. The idea that wealthy investors would pass up a profit just to avoid paying taxes seems like more Republican rhetoric to me.

      Byrnes: There’s nothing in this proposal that would stop the super-rich from simply pulling their assets from the market and holding cash-heavy positions until the politicians came to their senses. This new rule would throw the markets into turmoil and, from an administrative standpoint, would be a nightmare. I think it’s as unrealistic as the rest of the wealth tax proposals that aim to punish investors for their contributions to the economic growth in this country.

  • 0038. Charitable Giving

    • Prior to its enactment, one of the more widespread criticisms of the 2017 tax legislation bill was the potential impact that the sweeping changes would have on charities who rely heavily upon taxpayer donations to fulfill their mission. Although the federal tax deduction for charitable contributions was not changed dramatically under the final tax reform bill—post-reform, taxpayers are entitled to a deduction for cash gifts subject to a 60 percent AGI limit, while prior to reform, a 50 percent limit applied—other changes were expected to impact the deduction. For example, the substantial expansion of the standard deduction and limitations on itemized deductions themselves should mean that fewer taxpayers will itemize their deductions, and since the deduction for charitable contributions is an itemized deduction, it was argued that fewer taxpayers would give to charity.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on how the changes made by tax reform have impacted charitable giving, as well as any potential impact going forward. 

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Below is a summary of the debate that ensued between the two professors.

      Byrnes: First of all, under reform, the deduction for charitable donations was actually expanded so that taxpayers who itemize can now deduct larger cash gifts. Secondly, the panic over the impact on charitable donations has been completely unfounded—really, just another attempt by the democrats to incite panic and find a way to kill a tax reform package that has provided such widespread benefits. Taxpayers who give to charity continue to give to charity because they believe in a cause, not because they might get a tax break.

      Bloink: While it’s nice to believe that taxpayers are motivated to “do good” on a widespread basis just for the sake of supporting a good cause, the reality is that many middle class taxpayers who previously gave to charity are no longer financially able to do so because they no longer itemize their deductions because of the larger standard deduction and the fact that post-reform, it’s more difficult for taxpayers to claim basic itemized deductions such as the deduction for state and local taxes—so they’re unable to reach the “threshold” of the standard deduction.

      ____

      Byrnes: Tax reform has provided substantial tax breaks and benefits to middle class taxpayers that have nothing to do with itemized deductions. Look at the enlarged tax credit and the changes made to the tax brackets and rates themselves. Although the financial incentive may not be as direct, it’s still there because tax reform benefits everyone—even if only in the form of a strengthened economy and widespread job security. Regardless, taxpayers can still give to charity using tax-preferred strategies designed to get them the deduction if they need it.

      Bloink: Realistically, only the wealthiest taxpayers are able to take advantage of the remaining tax breaks that can be realized through charitable giving. Wealthy taxpayers who can make large annual contributions that exceed the $24,000 standard deduction (for joint returns) are able to take the deduction every year. Wealthy taxpayers who are able to form their own foundations and “bunch” their donations to the foundation into a single year…those high net worth taxpayers are still getting the deduction. It’s the ordinary taxpayers who want to make smaller donations who lose out under the new law.

      ____

      Byrnes: Charities haven’t suffered because taxpayers are giving regardless of the new rules. The fact of the matter is that many middle-income taxpayers aren’t financially motivated to give to charity—they’re motivated to give for more personal reasons, and have continued to support the charities that are important to them. These taxpayers have the option of saving (not giving) in some years in order to give enough to benefit from the deduction in year two or even in year three—that’s not a strategy reserved exclusively for the wealthy. 

      Bloink: Unfortunately, I don’t think the system is working in the way that Professor Byrnes thinks it is. The changes to the basic mechanisms for calculating tax are just another way that tax reform has benefitted the one percent in this country—and the ability of middle-income taxpayers to provide steady support to charities has dwindled as a result. Ordinary Americans often need that tax break in order to be able to afford to give, and so refrain from giving post-reform, while the one percent can manipulate the system to ensure they still get the same tax benefit that existed pre-reform.

       

  • 0039. Plan Lawsuit Case

    • The United States Supreme Court has agreed to decide a case involving the right of defined benefit plan participants to sue the managers of the plan even if the plan had ultimately not lost money for the participants. In this case, the participants initially brought the lawsuit based upon mismanagement of plan funds after the plan had lost money. However, the plan sponsors took action to add funds back into the plan so that the participants themselves no longer would have lost money. Regardless, the participants continued with their lawsuit because of the alleged mismanagement that sparked the issue—alleging that because the plan was underfunded for so long is proof that the plan was being mismanaged.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential repercussions of this decision, should the Supreme Court decide in the participants’ favor.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The Supreme Court should resolve this case in the participant’s favor because defined benefit participants shouldn’t have to wait until the plan is underwater before they can bring a lawsuit alleging mismanagement. While important, this case really isn’t about whether the plan has been mismanaged—the issue before the Supreme Court is whether the plan participants have a right to sue for mismanagement even if they cannot show they have lost money. This right is critical to ensuring that these hardworking Americans are protected.

      Byrnes: Allowing this type of lawsuit will create chaos—most plan participants have no insight into how these complicated defined benefit plans are funded and managed. Tides shift and plan managers have to have a degree of freedom to navigate the complexities presented by ensuring these plans are funded and successful. Further, there’s never a guarantee that an investment will perform the way that any of us may initially anticipate.

      ____

      Bloink: Plan participants shouldn’t have to wait and see whether things will work out in their favor if they can provide evidence that plan managers are mismanaging the plan. We’re talking about the financial stability of these participants, who have very little control over the day-to-day of how their retirement will play out. It’s these plan sponsors who have all the control, and they have to be held fully accountable for how they exercise that control.

      Byrnes: If the Supreme Court allows participants to sue plan managers even if they haven’t lost money, all we’re going to see is more lawsuits and fewer defined benefit plans. No employer is required to offer this type of retirement income security to employees—and those that do provide a highly rare and valuable service to the plan participants. Exposure to this type of liability is only going to motivate more aggressive lump sum offers and refusal to admit new participants to even existing plans.

      ____

      Bloink: From my perspective, someone has to shine a light onto how defined benefit plans are managed. In recent years, these plans have gone from bad to worse in terms of threatened insolvency and even benefit cuts for participants who are already in pay status. Offering lump sum payments to lighten the burden of future benefit payments over decades may have helped, but we need strong plan managers in place who take their fiduciary duties to properly manage these funds seriously. They should fear the threat of liability and they should use that fear to motivate prudent fiduciary decision making on behalf of hardworking plan participants.

      Byrnes: The problem is that it’s ordinary Americans who lose out if the Supreme Court decides in favor of plan participants here. Investments gain, investments lose and sometimes a plan manager’s strategies don’t take hold to produce success immediately—or even need to be modified over time. Not even requiring participants to show a financial loss to sue over mismanagement completely disregards these facts. Employers will simply stop offer defined benefit plan options to employees in even greater numbers if this case resolves in favor of the participants here.

  • 0040. Sub-Regulatory Guidance

    • President Trump has released two new executive orders that could have a significant impact on the way certain tax and related controversies are resolved. The executive orders would generally limit the ability of agencies and other entities to rely upon sub-regulatory guidance, such as field assistance bulletins, advisory opinions, and revenue rulings, in lieu of formal regulations. The IRS, Department of Labor, Treasury Department and other agencies commonly release these types of sub-regulatory guidance, which have historically been relied upon to bring enforcement actions and make determinations regarding violations. The new executive orders provide that sub-regulatory guidance should not be given the force of law. Generally, they are considered to be part of a broader effort by the Trump administration to restrict the agencies’ ability to issue sub-regulatory guidance in the first place.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on whether limiting the use of sub-regulatory guidance is advisable.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: It makes perfect sense that we should take steps to limit the way sub-regulatory guidance has been used in enforcement. Relying on sub-regulatory guidance to resolve important issues is, frankly, lazy. Sub-regulatory guidance consists of materials that have not gone through the formal processes required of legally binding rules. They aren’t laws, so they shouldn’t be given the weight of the law.

      Bloink: We need sub-regulatory guidance for a number of reasons—the first of which is practical. We don’t have the ability to conclusively resolve every imaginable issue in the law itself. The IRS, Treasury and related agencies are tasked with releasing regulations that interpret the laws to provide taxpayers with a more full picture of what those laws mean with respect to individual situations—but similarly, not every issue can be resolved even in the thousands of pages of regulations we’re already working with.

      ____

      Byrnes: The problem is that these materials are merely one interpretation by someone who works at the Treasury or the IRS or the DOL. They haven’t gone through the vetting process—and we have that process in place for a reason. Regulations are subject to rigorous review and are even made available for public comment for a reason. Sometimes even the agencies might not see all sides of how a rule could impact a specific taxpayer facing a specific set of circumstances. We have a process in place for implementing regulations for a very important reason—the protection of hardworking American taxpayers.

      Bloink: Sub-regulatory guidance doesn’t hurt taxpayers, it helps. In many cases, a revenue ruling or other form of “informal” guidance might be the only interpretive material available on a given subject. Look at cryptocurrency. We’re dealing with two revenue rulings and a set of frequently asked questions—and that’s really all that taxpayers have to go on if they want to comply with the IRS’ view on this “in the spotlight” tax issue. When taxpayers are facing potentially steep penalties and IRS enforcement actions, more guidance on an issue is always better.

      ____

      Byrnes: I fully disagree. Sub-regulatory guidance only adds to the jumble of paperwork and maze of regulations that taxpayers have to navigate in order to become compliant. Americans should be able to look for guidance in the law, and shouldn’t be expected to sift through complex agency materials to locate the position that the agency is likely to take.

      Bloink: Taking away the weight of sub-regulatory guidance leaves countless taxpayers in the lurch—and leaves courts without the resources that they need to interpret complex regulations and laws. We need sub-regulatory guidance to provide clarity and certainty. There is no practical way that the IRS and Treasury can handle every issue that might arise through the formal rulemaking process—and it definitely can’t be accomplished in a timely or cost-effective manner. Reducing the presence of unnecessary and complex regulations on the books might be an admirable goal—but that cost is too high for the kind of widespread de-regulation that Trump is ordering here.

  • 0041. Reversing SALT Cap Workaround

    • Senate Democrats have announced a plan to use their authority under the Congressional Review Act to force a vote in order to reverse the IRS rule that prevents taxpayers from relying upon state-level rules to work around the $10,000 cap on the deduction for state and local taxes. Essentially, the IRS rule prohibits taxpayers from taking state-level tax credits for donations made to state-established charities in order to reduce the impact of the federal cap. Under the Congressional Review Act, Congress is permitted to review and nullify agency guidance, including IRS guidance, if the review is undertaken in a timely manner.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the advisability of using the CRA to challenge this IRS rule.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: While the Senate plan may seem extreme, the SALT cap in itself is extreme—meaning that extreme measures are appropriate in order to protect taxpayers from this arbitrary and inequitable tax penalty. The arduous SALT cap places a huge burden on much of middle class America based solely upon the tax structure in a taxpayer’s state of residence. The IRS has prevented states from taking action to reverse the inequitable treatment created by the SALT cap, so if the Senate Democrats have to resort to using the Congressional Review Act to nullify this rule, it’s because they’ve been left with no other option.

      Byrnes: Using the Congressional Review Act as a weapon to nullify the IRS’ valid enforcement of a law that was approved by Congress and signed into law by the President is a ridiculous political ploy on the part of Senate Democrats. While the check that’s permitted under the CRA provides a valuable took to ensure that agencies don’t overstep their mandate in enforcing the law, using the CRA in this case is uncalled for because the IRS rule simply enforces the federal law.

      ____

      Bloink: The problem with the SALT cap is that it’s a highly inequitable provision that results in Americans paying taxes on the same income twice—both at the state and local level, and then again by paying federal taxes on amounts that have already been expended for lower-tier taxes in the taxpayer’s home state. We’ve tried to work toward raising the cap or simply eliminating the cap, but Republicans in Congress have blindly refused to cooperate in a compromise agreement.

      Byrnes: Resorting to the CRA is extreme and uncalled for—it’s only a ploy being used by Democrats to gain votes in 2020. Importantly, even if the IRS rule was invalidated, the SALT cap will continue to stand as an important revenue check on the substantial tax cuts that everyone has benefitted from under the TCJA.

      ____

      Bloink: The SALT cap is an experiment that’s failed. It’s time for Republicans to take notice of the fact that this is one provision in the tax reform bill that can’t be allowed to stand. If we can’t garner the support to invalidate the rule altogether, we can at least allow states to step in to mitigate its impact on hardworking Americans.

      Byrnes: These hardworking Americans that Professor Bloink speaks of have reaped the benefits of substantial tax breaks under the TCJA. They’re paying less in taxes and if the SALT cap reduces the value of one substantial tax benefit it’s only in an effort to tax everyone more equitably at the federal level. We needed the SALT cap to offset the revenue lost to a much greater good—reducing the tax burden for everyone. States shouldn’t be permitted to enact legislation designed to reduce the value of a law that was properly voted on and implemented, and the IRS rule recognizes this fact. Using the CRA at this point is a last-ditch desperate attempt by the Democrats to gain votes.

  • 0042. Wealth Tax Implications

    • As the Democratic presidential candidates make their respective cases for the nomination, one idea that’s been floated by various candidates involves imposing a so-called “wealth tax” on wealthy Americans. The details of these proposals vary, but the basics are the same—candidates would begin imposing tax on taxpayers’ accumulated wealth (Sanders’ proposal taxes accumulated wealth beginning at $32 million). The taxes would increase on a sliding scale so that those with the highest net worth would pay the most (Warren would impose a 3% tax on those with assets in excess of $1 billion, Sanders’ tax would max out at 8% for those with assets valued at over $10 billion).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions and views on the potential effects that imposing a wealth tax could generate.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: We’re at a point in American when we need to get things done—make sure all Americans have access to quality, affordable healthcare, improve our infrastructure, invest in education. To accomplish these goals, we need revenue. Implementing a wealth tax to prevent the wealthiest of Americans from circumventing the system to avoid paying taxes is a fair and equitable way to get this done. Imposing a wealth tax on the very richest Americans would produce positive benefits for society as a whole.

      Byrnes: While I don’t believe that a wealth tax could ever pass Congress, the impact of such a tax would be anything but positive. A wealth tax would give the wealthy a perverse new incentive to find new ways to minimize tax liability, whether through trusts, foundations or otherwise. And it would alienate a sector of the economy that invests in our small businesses and keeps American running—maybe even resulting in another recession.

      ____

      Bloink: Republicans have a misguided view of the potential impact that a wealth tax could have. When accumulated wealth valued at above a certain threshold is subject to tax, the wealthy have an incentive to spend. Consumer spending—whether on luxury items or otherwise—is the bread and butter that keeps our businesses (small and large) going strong. Seen from this perspective, a wealth tax is likely to fuel the economy, not stifle its growth.

      Byrnes: Is it really more responsible to encourage the well-off to spend rather than save and invest? Since when do we want to disincentivize savings by punishing those who work hard to protect their future—and the future of the businesses and workers that they protect by doing so. Besides, when the wealthy spend to avoid a wealth tax on accumulations, what do you think they’re going to buy? Depreciable assets that can be used to reduce or even eliminate tax liability?

      ____

      Bloink: We need to be focused on the real potential value of a wealth tax, which is bound to be implemented in some form if we defeat Trump in 2020. Whatever the wealthy choose to buy, businesses will benefit. The economy will benefit from an uptick in consumer spending and society as a whole will benefit if the wealthy choose to keep their wealth locked up in investments that will now be subject to tax. One potential beneficiary of a wealth tax would be the charitable organizations that do so much good throughout our communities—giving to charity is one positive way that the wealthy can decumulate dynastic wealthy while also reaping a tax benefit.

      Byrnes: When it comes to charitable giving, a wealth tax would simply encourage the wealthy to shift funds into their own private foundations. I’m not saying that these foundations don’t do a lot of good—they do. I’m saying that the funds don’t necessarily have to be spent immediately. I just don’t think a wealth tax would generate the kind of positive results that Democrats seem to be touting. I also don’t think the Democrats will be able to get it together to pass and implement this type of tax.

  • 0043. Bonus Depreciation

    • The 2017 tax reform legislation extended 100 percent bonus depreciation for qualified property put into place by business owners before 2023. The provision essentially allows business owners to completely expense both new and used property that is purchased and put into place during that time frame. However, beginning in 2023, the 100 percent bonus depreciation amount will begin to phase down until it reaches zero percent for tax years beginning after 2027. In recent months, lawmakers have floated proposals to eliminate the phase down so that 100 percent bonus depreciation will remain available.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the possible impact of the bonus depreciation phase-out.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: I agree that we need to pass some sort of legislation to extend the 100 percent bonus depreciation rules. In one form or another, bonus depreciation has been around for years. Allowing business owners to fully expense property in the year it is placed into service is a great way to stimulate economic growth and it’s a rule that we need to keep around in the current economic climate.

      Bloink: The whole reason the bonus depreciation percentage rate has to phase out is because Republicans didn’t have the votes to pass tax reform through the proper channels unless the bill as a whole didn’t increase the national deficit by a certain amount. The bonus depreciation percentage has to phase out in order to keep up with that promise in the face of dramatic tax cuts given to big corporations. We can’t go back and rewrite the bill at this point.

      ____

      Byrnes: It’s not re-writing tax reform to allow 100 percent expensing in year one to stand. The bonus depreciation rules existed far before the 2017 tax reform bill was ever dreamed up. By phasing out bonus depreciation in the coming years, we’re simply passing today’s potential economic problems on to be dealt with in future years. It doesn’t make any sense to phase out bonus depreciation when we know we’ll have to implement 100 percent again when the economy takes a nose dive.

      Bloink: The 2017 tax bill overwhelmingly favored big corporations and friends of President Trump. These large corporations already got a huge tax break by reducing the corporate tax rate to 21 percent. Now we’re going to give them yet another tax break by extending 100 percent bonus depreciation? We don’t need to be giving corporate American yet another windfall.

      ____

      Byrnes: I don’t think that 100 percent bonus depreciation should be merely extended for a couple of years, I think it should be made the permanent law of the land. Otherwise we’d be stifling economic growth in future years because business owners aren’t going to make the significant capital improvements that they’d make with full expensing. This investment in the economy helps everyone, not just corporate America. We need to take steps now to prevent this sunset provision from hurting our economy in the coming years.

      Bloink: I’m all for economic growth, but we also need to find a balance in getting the tax revenue we need to get major projects in Washington done. We’d be giving corporate America yet another huge break when they’ve already reaped plenty from tax reform—and we haven’t seen the tremendous trickle down effect that we were promised. We need to focus on making sure corporations are paying their fair share, and extending 100 percent bonus depreciation yet again is just another disguised way of saying large corporations don’t have to pull their weight when it comes to taxes.

       

  • 0044. New HRA Rules

    • New rules expanding the availability of health reimbursement arrangements (HRAs) have recently been finalized, generating the question of the impact that these newly expanded HRAs could have on the health insurance markets generally. Individual coverage HRAs will allow employers to use the HRA vehicle to reimburse employees for the cost of health insurance that the employee purchases on the generally available health insurance marketplace. The rules provide guidelines for how employers can classify employees, but the employer is permitted to offer traditional group health coverage to some classes of employees and individual coverage HRAs to other groups.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions to discuss the potential impact that HRAs might have both on employer-sponsored health insurance and the individual markets.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: This expansion of the HRA rules is a much-needed improvement over the failing status quo system. Traditional group health insurance costs have risen so dramatically in recent years that many employers simply can’t afford to offer these plans on the same terms to all employees. The individual coverage HRAs given employers a way to offer health coverage on a tax-preferred basis while at the same time reducing the employer’s cost for providing that valuable benefit.

      Bloink: While I’m all for encouraging employers to offer health benefits to employees—even if the ACA doesn’t require it—the individual coverage HRA rules are going to create important problems of their own. They encourage employers to find ways to offer coverage to employees at the lowest available price point—meaning that it’s inevitable that some employers may be motivated to push older, sicker workers into classes that are offered HRA reimbursement instead of traditional group coverage. That in itself will create significant problems.

      ____

      Byrnes: The individual coverage HRA rules have been structured to avoid any discrimination issues. What we’re going to see is more employees receiving offers of some type of employer assistance with health insurance premiums. The fact is, the Affordable Care Act hasn’t made health coverage more affordable for anyone. Individual coverage HRAs will give more employees access to health coverage while giving employers a valuable option to help save on costs.

      Bloink: My take is that individual coverage HRAs are likely to cause health insurance premium costs in the health insurance marketplaces to spike. When employers can group some employees into classes that qualify for traditional coverage and others that have to purchase their insurance on the marketplace, we can all guess what the results will be. There are too many workarounds in the way that employers can classify employees for health coverage purposes.

      ____

      Byrnes: The ACA system that we have in place right now isn’t working. The cost of coverage is much too high. Using HRAs to reimburse employees for health insurance that they can choose and pay for on their own gives the employee more control and the employer a potentially cheaper way of funding health benefits. And that combination is good for all parties involved.

      Bloink: For individual coverage HRAs to work, we’re going to need substantially more detailed and strict guidance about the potential discrimination issues that are likely to arise. As our system stands today, the introduction of a secondary option for employers is going to cause individual premiums to soar across the board. The rules add a secondary system that’s supposed to somehow work alongside the traditional employer-sponsored health system. As the rules are formulated now, they just seem to give employers a workaround to provide sub-par options while avoiding the employer mandate.

  • 0045. SECURE Act Delay

    • Earlier in 2019, the House passed what has become known as the SECURE Act, which would make sweeping changes to various rules that impact retirement savings. Among other provisions, the SECURE Act would raise the required beginning date for RMDs from 70½ to 72, make changes to multiple employer defined contribution plans and would make it easier for retirement plan sponsors to offer annuity options within 401(k)s. Although the retirement bill is largely seen as a bipartisan effort that has been expected to pass, the Senate has yet to execute the vote necessary to pass the legislation into law.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the rationale for the delayed vote and the potential impact.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: I know that the SECURE Act is an important piece of legislation, but that means it is even more important that we make sure we get it right before rushing it into a vote. This law is likely to impact everyone at some point in their lives. Because it is so important, there shouldn’t be a rush to pass the law before it’s in the best possible form. As the bill stands, it caters much too strongly to Democratic special interests without fully addressing the really important issues of the day.

      Bloink: The delay in voting on the SECURE Act is completely unreasonable. Republicans are not against the provisions that are contained in the law as it stands. They are simply stalling this extremely important piece of legislation so that they can get personal “pet” projects tacked onto the popular bill. As the legislation stands today, it addresses what needs to be addressed—and we should remember that there is not some kind of limit on the number of laws Congress can pass. Unrelated provisions should be dealt with separately and not used as a stalling tactic.

      ____

      Byrnes: We need to look at the bipartisan SECURE Act as an opportunity to make a positive change in the way Americans save. I do not see it as a failing to “hold out” until we get to a law that comprehensively addresses some of the most important issues of our time.

      Bloink: I do not think it is reasonable for Republicans to block a vote to get even important projects passed. For example, some Republicans are resisting a vote because they want this retirement savings bill to also address the 2017 tax reform “glitch” that prevents certain retailers from immediately expensing the costs of building improvements. Sure, fixing that problem should be a priority for Congress, but it has nothing to do with the legislation at hand. This is purely an issue of ego.

      ____

      Byrnes: Democrats seem to want to vote on the bill just because it exists. The fact is, many Republicans could opt to vote the bill down if it is put to a vote before it is ready. That is a risk that we should not take and it is a risk that we don’t have to take. We first have to make sure that this extremely important law does what it should to help all Americans.

      Bloink: Regardless of individual Senators’ focus, we need to use the momentum that this bill has already generated to pass an extremely important law so that we give all Americans the benefit of these improvements to the retirement system. The holdup is not about the bill as it is currently drafted. It is about individual Senators wanting to throw unrelated provisions into the law at the eleventh hour. The risk that the momentum will simply fizzle out and the existing bill will completely unravel is too great—the Senate needs to vote on the SECURE Act and I think they should do it now.

  • 0046. LTC Withdrawals

    • A recent bill proposed by Republicans in Congress would allow taxpayers to take penalty-free withdrawals from retirement accounts to pay for long-term care insurance premiums even if the taxpayer has yet to reach age 59 ½. In general, taxpayers cannot take penalty-free withdrawals from a traditional (i.e., pre-tax dollars) retirement account until reaching age 59 ½ unless they satisfy an exception. This bill would create a new exception for insurance premium costs specifically earmarked for long-term care coverage.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether this bill should pass and potential implications for taxpayers if it does.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: The need to solve this country’s problems surrounding paying for long-term care cannot be overstated. Too many hardworking Americans simply don’t have the financial resources to cover the cost of insurance or care itself when it eventually becomes necessary—meaning that these taxpayers are pushed into the Medicaid system after using up literally all of their assets to cover as much care as they can. Allowing these taxpayers to access their savings without penalty to avoid this fate is the most reasonable course of action.

      Bloink: The problem is that we need to address the cost and availability of long-term care and long-term care insurance itself. The cost of long-term care insurance itself is astronomical. This bill would essentially encourage taxpayers to deplete their hard-earned retirement assets to pay these outrageous costs—and there’s still no guarantee that anyone will be able to keep up with increasing premium costs over time, meaning that the insurance funding might leave the taxpayer with nothing anyway.

      ____

      Byrnes: The current system creates an entire class of taxpayers who are completely reliant upon Medicaid—some with absolutely no assets of their own. The whole point of allowing taxpayers to access their savings without penalty before age 59 ½ is to give these Americans access to long-term care insurance while they can still qualify. In many cases, once someone is already old enough to quality for penalty-free withdrawals, their health has declined to the point where they cannot quality for insurance.

      Bloink: We need to do something about the long-term care insurance problem itself without encouraging taxpayers to raid their 401(k)s. The cost of long-term care itself is extremely high and continues to rise. Insurance carriers have, in some cases, even raised long-term care insurance premiums dramatically on existing policies. Simply giving Americans access to their retirement savings seems to provide a false sense of security.

      ____

      Byrnes: Americans should have the right to choose how they will fund their long-term care costs. Forcing taxpayers to wait until age 60 to access their own savings without penalty is not an acceptable choice anymore. Basically, that leaves taxpayers with the burden of using those savings to eventually cover as much long-term care as possible because they’re not likely to qualify for insurance at an older age.

      Bloink: Sure, this bill would allow taxpayers to fund the cost of long-term care insurance—and maybe some will be able to afford that cost indefinitely, until care is needed. The real problem arises when Americans can no longer afford even their existing premium costs and have depleted their retirement savings. Then the problem evolves from avoiding Medicaid to simply figuring out how to afford the cost of living well into retirement even if long-term care is not eventually needed. We need to solve the root problem here—which requires finding a way to lower the cost of long-term care or provide an option to ensure that care is funded for all Americans.

  • 0047. State Fiduciary Rule

    • Massachusetts has officially joined the ranks of states that have proposed their own fiduciary rules in the time since the nationally applicable DOL fiduciary rule was struck down. Under the Massachusetts fiduciary rule, all advisors would be subject to a uniform standard of care—meaning that all broker-dealers, investment managers, agents and investment advisor representatives would be required to act in the best interests of their clients to avoid conflicts of interest. The Massachusetts rule also comes in the wake of Regulation Best Interest, which imposes an SEC-mandated best interests standard on certain broker-dealers and advisors.

      We asked two professors and authors ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential impact of the Massachusetts rule, should it be finalized.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The comprehensive fiduciary rule proposed by the Massachusetts legislature is exactly what we need to make sure that hardworking American investors are protected from conflicts of interests on the part of their trusted advisors. If the federal agencies are unable to propose a working, nationwide standard, I don’t see why the states shouldn’t step in to make sure that their citizens are fully protected. This proposed Massachusetts rule goes a long way toward giving other states an example of how they can act to protect their own citizens.

      Byrnes: We just implemented the SEC’s Regulation Best Interest a few months ago—advisors are still grappling with ways to comply with that standard. All that the Massachusetts fiduciary rule does is contribute to a patchwork-like system that makes it nearly impossible for advisors to ensure that they are complying with all of these regulations. The rule leads to a system where advisors will simply stop trying to comply and operate in other jurisdictions instead.

      ____

      Bloink: The Massachusetts rule sets a uniform standard for every advisor—a clear cut mandate that anyone who is giving investment recommendations or advising clients with respect to their financial security are going to have to act in the client’s best interest. I don’t see any negative here. Advisors who are subject to the SEC best interest standard are also going to have to comply with the Massachusetts best interest standard, as will advisors who aren’t caught up in the SEC compliance effort.

      Byrnes: Like other state-level initiatives, the Massachusetts fiduciary rule has the potential to conflict with the federal SEC standard and any potential future DOL standard. We can’t expect advisors to take measures to comply with discrete fiduciary standards in all 50 states, in addition to whatever rule we eventually see at the federal level. That would be chaos.

      ____

      Bloink: I really don’t see where the conflict lies. If the DOL enacts a comprehensive, nationally applicable fiduciary standard, states like Massachusetts won’t have to enact their own regulatory regime. We can’t expect the states to sit back and do nothing while their investors are left exposed to the potential harm that conflicts of interest can create.

      Byrnes: The bottom line is that this rule is going to make it more difficult for average hardworking Americans to get the investment advice that they so badly need to secure their retirement and financial future. That advice will become more expensive as it becomes more expensive for the advisors and advisory firms to operate within a given state. Massachusetts should rethink its proposal to make sure that state citizens have access to the advice they need—before trusted advisory firms simply begin to pull their business from the state.

  • 0048. New SALT Proposal

    • In the continuing drama surrounding the $10,000 cap on the deduction for state and local taxes (known as the SALT cap) enacted under the Tax Cuts and Jobs Act for 2018-2025, House members have proposed a new piece of legislation. Under the terms of the proposal, known as the “Restoring Tax Fairness for States and Localities Act”, the $10,000 SALT cap would double to $20,000 for married couples in 2019, after which it would be completely eliminated. To restore the SALT deduction to the pre-tax reform unlimited deduction, the legislation would bring back the top 39.6% ordinary income tax rate (tax reform lowered the top rate to 37% for 2018-2025).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about both the viability and potential impact of this new legislation.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: I think we need to do whatever we can to restore equality among taxpayers regardless of the state they choose to live in. The SALT cap itself was enacted entirely to fund the huge tax breaks that big businesses received under the 2017 Tax Cuts and Jobs Act. It isn’t fair that taxpayers in Democratically-leaning states are left to shoulder so much of the burden of the SALT cap. Doubling the cap is a step in the right direction, but eliminating the cap entirely is the only way to restore equality.

      Byrnes: The SALT cap applies equally to all U.S. taxpayers. The now-standard Democratic argument that the SALT cap is somehow inequitable makes no sense. States are free to impose their own taxes and the federal government has full authority to pass uniformly applicable laws regarding application of federal income tax deductions. The SALT cap was a part of a law that was passed fairly according to the prescribed rules for passing law. To now say that it is unfair….well, that is not enough to invalidate a validly passed law.

      ____

      Bloink: I seem to remember a promise of tax cuts for all Americans when the 2017 tax reform bill was passed. As it currently stands, middle class taxpayers in high-tax states are paying more in federal taxes. Further, one only has to look at where the SALT cap hits the hardest to know that this law is inequitable. New York, California, New Jersey—all high tax states that tend to vote Democrat. It’s almost as though Trump and the Republicans specifically sought to punish Democratic-leaning states with this cap.

      Byrnes: Democrats shouldn’t be able to cherry pick what aspects of the comprehensive tax reform package get to stand and which should be invalidated. The Tax Cuts and Jobs Act is working. The economy is strong. Doomsday predictions about impending recession have largely been proven wrong. This is just one more desperate attempt by the Democrats to garner votes in a hotly contested election year.

      ____

      Bloink: Raising the top income tax rate for everyone not only helps ensure the wealthy pay their fair share of taxes, but also distributes the cost of providing huge tax cuts to big business evenly throughout the country. Sure, the wealthy might pay more. But right now, middle-class taxpayers in higher tax states are paying more under tax reform than pre-reform. It makes no sense that we wouldn’t try to apportion the cost of business-related tax cuts evenly throughout the country, based on income. The SALT cap apportions the cost based on where taxpayers live. That is the definition of inequality if you ask me. Raising and then eliminating the SALT cap under this bill would continue to allow for revenue generation, just on a much more equitable basis.

      Byrnes: Raising taxes is not the way to strengthen our economy—as clearly demonstrated by the strong economy supported not in small part by the 2017 tax cuts. This new proposal adds unnecessary complication to the tax code, for one. Most importantly, Democrats shouldn’t be able to unilaterally unravel a newly revamped tax code that has benefitted every American—in the form of tax cuts and a strong, robust jobs market.

  • 0049. HELPER Act

    • Senator Rand Paul has proposed a new law—known as the Higher Education Loan Payment and Enhanced Retirement Act (“HELPER Act”)—to allow taxpayers to withdraw up to $5,250 in 401(k) or IRA funds each year to pay down student loan debt. The bill is designed to help taxpayers with a common problem—how to pay down sky-high student loans when their only sizeable asset comes in the form of restricted-access retirement accounts. The funds could also be used to pay for higher education tuition and expenses of the retirement account owner’s spouse or dependents. The funds would be withdrawn both tax and penalty-free.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the HELPER Act is a viable solution for solving taxpayers’ student loan problems.

      Below is a summary of the debate that ensued between the two professors.

       

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: We can no longer ignore the fact that college graduates in this country are often forced to take on astronomical debt levels in order to attain their degrees. Paying down that debt is often just as important as other goals, such as buying a home, for which the retirement account early withdrawal penalties sometimes don’t apply. Providing an exception to the general rule to pay down student debt can be critical to the financial security of millions of taxpayers.

      Bloink: This “HELPER” Act is solving one financial crisis by creating another. It basically pushes the financial problem down the road for taxpayers with student debt, making it more likely that these taxpayers are going to face a financial shortfall during retirement. We need to solve the root problem rather than putting a band aid on the issue and giving it to future generations to handle.

      ____

      Byrnes: Taxpayers with student loans know all-too-well that these huge loan balances are accruing interest at alarming rates every moment that they remain outstanding. Every year that these debts remain unpaid, the balance creeps higher. Allowing student loans to be repaid with pre-tax funds can give clients the means to climb out of this black hole of debt so that they can wipe the slate clean and begin focusing on future savings.

      Bloink: It’s one thing to encourage employers to offer employees with a student loan repayment benefit to encourage 401(k) savings. It’s another entirely to encourage raiding retirement assets to repay student loans. What happens in 30 or 40 years when we haven’t fixed Social Security and these taxpayers are student-debt free, but are unable to work to provide for themselves during retirement?

      ____

      Byrnes: It’s an over exaggeration to say that taxpayers will be destitute during retirement if allowed to use their own hard-earned savings to pay down their student debt today. This might even encourage taxpayers to save more for retirement, because they know they’ll be able to access their funds if they are unable to pay off their student debt with outside earnings.

      Bloink: Raiding the 401(k) today guts the primary benefit of these accounts—compound growth over time via accumulated interest crediting. Allowing pre-tax contributions gives taxpayers the means to save more currently so that those larger amounts grow over a lifetime to be used during retirement—only taxed when the client is likely to be in a lower income tax bracket. For most, raiding their future retirement might not even be enough to allow them to pay off their student loans, adding insult to injury. And the fact that lenders will know that student borrowers have additional funds to draw from? You have to believe that will only contribute to the skyrocketing cost of a college education in this country.

  • 0050. Cadillac Tax Repeal

    • Among many other significant changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, the year-end legislation that became law shortly before Christmas also eliminated several taxes imposed by the Affordable Care Act (ACA). Among those taxes was the controversial “Cadillac tax” on high-cost health coverage. The tax was set to become effective in 2022, and would imposed a tax on employers offering employer-sponsored health plans that cost more than $10,200 for self-only coverage or $27,500 for family coverage.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the repeal of the Cadillac tax.

      Below is a summary of the debate that ensued between the two professors.

       

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: The Cadillac tax has been languishing for years, with the effective date constantly being pushed out into the future because it was simply unworkable. It makes no sense to tax employers who want to provide generous health benefits as an employment benefit. Repealing the tax was the right move and, in fact, the only move available except to continue extending the effective date which would have let a “ghost” tax remain on the books.

      Bloink: The Cadillac tax served a valid purpose. I understand that it was unpopular, but it should not have been repealed entirely. As we all know, important laws that provide necessary benefits to society don’t pay for themselves. The Cadillac tax was a fundamental part of ensuring that the Affordable Care Act not only functioned as it was meant to, but also was fiscally responsible from a budgetary perspective.

      ____

      Byrnes: The Cadillac tax was never going to become effective—it would never have garnered the political support necessary. It was just another failed provision of the ACA that should have been eliminated years ago, much like the entire law, rather than extended and extended again.

      Bloink: The point is that there were alternatives to repealing the tax, which would have prevented big corporations from showering their executives with yet another generous benefit—high cost health care—while ordinary taxpayers suffered. Modification of the tax would have provided the best solution when we look at the issue from all angles.

      ____

      Byrnes: Repealing the Cadillac tax now means that business owners can plan for the future. They can choose the benefit packages that will be offered to their employees without fear that this “ghost” of a tax will finally come out to haunt them. The repeal will allow employers to offer greater choice with respect to health coverage to their employees. What we all want is for taxpayers to have access to valuable health benefits. The Cadillac tax was only hindering the availability of these much-needed benefit choices.

      Bloink: We all know that the taxpayers who will reap the benefits of the Cadillac tax repeal are going to be the corporate executives who are already drawing the highest paychecks. Realistically, corporations are not going to change their policies to provide generous, high cost health insurance to every rank and file employee. This is yet another example of how big business and the super-rich are benefitting from the Trump administration policies.

  • 0051. SECURE Act Stretch IRA Elimination

    • One of the most controversial and talked about aspects of the SECURE Act is the limits placed on the value of the “stretch” (or inherited) IRA. Under previous law, non-spouse beneficiaries were generally entitled to deplete the inherited IRA funds over the beneficiary’s life expectancy, allowing the tax-deferral value of the IRA to be “stretched” over time. Under the new law, almost all non-spouse IRA beneficiaries will have to take distributions from an inherited IRA within ten years of the original account owner’s death. Exceptions exist for chronically ill beneficiaries, disabled beneficiaries, certain minor children and other children who may be completing a qualifying course of education.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the elimination of the stretch IRA and potential impact on IRA use going forward.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: First and foremost, IRAs are retirement planning vehicles and the tax code shouldn’t encourage wealthy taxpayers to treat them as yet another estate planning vehicle offering substantial tax benefits to future generations. Secondly—and equally important—is the fact that the significant benefits enacted under the SECURE Act had to be paid for to ensure fiscal responsibility, and eliminating the stretch is the most logical way to do that. The new retirement rules make it easier and more beneficial for everyone to save.

      Byrnes: I think the limits placed on the stretch IRA are ridiculous and unnecessary. Taxpayers should be allowed to do whatever they want with their hard-earned retirement funds. They shouldn’t have to worry about creating a tax catastrophe for their heirs if they are lucky enough to not need their IRAs–or are unlucky enough to die before they can enjoy those savings.

      ____

      Bloink: The SECURE Act maintains a ten-year elimination period for inherited IRA funds, so we can hardly say that the new rules will create a tax catastrophe for IRA beneficiaries. The law also contains a number of important exceptions to ensure that beneficiaries who might really need the tax benefits of the IRA are protected. It’s a fair and reasoned compromise solution.

      Byrnes: If someone is able and wants to leave more funds in their IRA, rather than using those funds for retirement income, they should be able to do just that. This not only encourages taxpayers to save for retirement, but also gives a tax incentive to encourage taxpayers to engage in comprehensive retirement income planning that includes creating a way to access income from other sources, like annuities and Roth accounts.

      ____

      Bloink: The reality is that the stretch IRA was really just another way that the super-rich were allowed to legally benefit from a loophole in the tax code. They could stash IRA funds away, reducing their current taxable income and allowing already-wealthy heirs to reap the tax deferral benefits of these retirement accounts for decades after their death. The SECURE Act rule is a logical middle ground that protects beneficiaries from the untenable requirement of paying taxes on the full inherited IRA immediately while also ensuring that the super-rich pay their fair share.

      Byrnes: Eliminating the stretch IRA punishes taxpayers who have diligently saved and played by the rules rather than engaging in questionable tax strategies. The “super-rich” have any number of estate planning strategies at their disposal to protect future generations. Telling today’s savers that their loved ones could face sky-high tax bills based only on inheriting what’s left in an IRA discourages saving within retirement accounts because taxpayers will fear saddling their heirs with untenable tax responsibility.

  • 0052. Employment Tax Proposal

    • The modern “gig” economy has given rise to an employment landscape where large corporations rely upon the services of armies of independent contractors in their daily operations. Uber and Lyft, for example, operate under a business model where all drivers are treated as independent contractors. Independent contractors, unlike employees, are responsible for paying the entire amount of the employment tax. A new proposal would require large employers with more than 10,000 independent contractors and gross receipts exceeding $100,000,000 annually to pay the employer’s portion of independent contractors’ Social Security and Medicare taxes.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the viability and impact of this proposal.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: I’m all for this proposal becoming law. Allowing big corporations to shift their tax liability as employers onto employees is just another way that the super-wealthy people who control these companies benefit from a broken tax system—at the expense of the hardworking Americans that are making their companies so profitable. Requiring these corporations to pay their fair share of the employment tax is an important step toward helping hardworking Americans who are treated—perhaps unfairly—as independent contractors make ends meet.

      Byrnes: Why should companies be shouldered with additional tax liability just because they’ve managed to thrive in today’s gig economy? This is just another Democratic plot to demonize success. Companies that are already paying their fair share of taxes and have created a business model that gives countless taxpayers the opportunity to earn additional funds shouldn’t be punished for their successful business model.

      ____

      Bloink: It’s not about punishment, it’s about responsibility. The fact that huge companies like Uber and Lyft have managed to classify their drivers as independent contractors rather than employees allows them to save a fortune on taxes and employment benefits. And it’s questionable whether this classification is even correct—considering that the drivers are primarily responsible for providing the basic service that these companies offer.

      Byrnes: People who work as independent contractors enjoy a tremendous amount of freedom when compared to employees—who are subject to the direction and control of their employer. Uber, Lyft and similar companies can’t so much as tell their contractors when to show up for work. This proposal isn’t even administratively practical—does anyone who completes one Uber drive count toward the 10,000 limit?

      ____

      Bloink: One of the problems with this country today is that ordinary taxpayers can’t afford the basic costs of living. They can’t afford their health insurance, they can barely afford to pay rent and keep their kids fed. Big companies that are making millions because of their hard work need to step up and shoulder some of that financial responsibility. The tax burden is only part of the problem—we need increases in wages, both for contractors and employees, and financial help with the skyrocketing cost of health care. This proposal is a step in the right direction toward helping tens of thousands of workers make ends meet.

      Byrnes: This legislation, should it ever become law, would give independent contractors the benefits of both independent contractor status and employment status—with none of the burdens associated with being a formal employee. Conversely, it shifts the burdens onto the company simply for being profitable and giving thousands of taxpayers the work opportunity—providing another disincentive for the next startup that might provide an invaluable service that all Americans can enjoy.

       

  • 0053. Kiddie Tax Fix

    • Before 2018 (pre-tax reform), children under the age of 19 (age 24 for students) were generally required to pay tax on their unearned income (above a certain level) at their parents’ marginal rate. The so-called “kiddie tax” applied to children who had not reached certain ages before the close of the taxable year, who had at least one parent alive at the close of the taxable year, and who had over $2,100 (in 2015-2018) of unearned income. The 2017 tax reform package changed this rule so that the income tax rates applicable to trusts and estates were used to determine the minor’s tax liability with respect to unearned income (the rates for single filers apply to earned income). The SECURE Act once again changed the rules beginning in 2020—so that the old, pre-reform rules will simply apply and the new tax reform system is eliminated. For 2018 and 2019, taxpayers can elect to use either system.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the kiddie tax rules’ reversion to their pre-reform status.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      ____

      Byrnes: The changes made by the 2017 tax reform package created a strange situation where the unearned income of minors became subject to a much higher tax rate schedule much more quickly. It never made any sense to say that the tax rates applicable to the unearned income of minors would be taxed in the same way that trusts and estates are taxed. Going back to the old rules makes the most sense and creates a much more simple system.

      Bloink: The kiddie tax changes were actually implemented to lower the taxes that almost all minors would pay on their unearned income. Only children of the very wealthy are likely to have sufficient unearned income that would subject them to the higher tax rates generated by use of the trusts and estates ordinary income tax rates. For most children with only a modest amount of unearned income, this flip back to the old system is going to subject them to higher rates—while children of the super-rich are once again able to benefit from their parents’ income minimization strategies.

      ____

      Byrnes: The parents of minors are the ones who are generally in charge of determining how the minor’s unearned income will be used, managed, etc. It makes much more sense to say that this unearned income will be taxed according to the parents’ rates schedule.

      Bloink: Switching back to the old system only helps the children of wealthy parents avoid paying taxes on their unearned income. Only in very rare situations are the children of middle class parents likely to have over $13,000 in unearned income in any given tax year. In the vast majority of cases, the kiddie tax change is one provision of the tax reform package that actually worked to lower taxes for the middle class.

      ____

      Byrnes: Under tax reform’s system, children with about $13,000 of unearned income would become subject to the highest income and capital gains tax rates. That makes zero sense when compared with the rate an adult would be subject to on the same funds. Reverting back to the old system recognizes the fact that minors rely upon their parents for support, and that it is the parents whose income levels determine what the fairly applicable tax rates should be.

      Bloink: Reverting back to the old kiddie tax system may be more simple, I’ll agree to that. However, the reversion essentially amounts to a tax hike on the middle class—albeit a relatively minor one. This is one group of taxpayers that did not receive the windfall tax benefits of the tax reform law, and it is unfair that we should go back now and subject their children to higher taxes in most cases.

       

  • 0054. Flat Transfer Tax Proposal

    • House Republicans have recently introduced a proposal designed to simplify the transfer tax system and reduce the applicable tax rates. Under the proposals, the maximum estate, gift and generation-skipping transfer (GST) tax rate would be reduced to a flat 20% for taxpayers whose gross estates exceed the transfer tax exemption level (which is set at $11.58 million per individual for 2020).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential impact of this new proposal.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Eliminating the complex transfer tax rate schedule that taxpayers now much grapple with to determine their transfer tax liability would be a huge win. Although eliminating the death tax entirely would be the most fair outcome, this is a step in the right direction.

      Bloink: I’m all for simplifying the tax code, but not if it results in a situation where the super-rich are simply getting another windfall tax break. Think about the types of taxpayers who are lucky enough to have to worry about the transfer tax in this day and age (where the exemption is more than $11.5 million per person). Halving the transfer tax rate is yet another clear tax cut for the ultra-wealthy at the expense of ordinary taxpayers.

      ____

      Byrnes: This type of simplification is not only what we should strive to see in the tax code, but it would reduce the need for hardworking Americans to spend so much of their time and energy implementing creative estate planning strategies designed to reduce their tax liability. Our current system creates a perverse result where taxpayers are forced to pay an army of tax planners in order to reach a result similar to that which this bill would generate.

      Bloink: What we need to do is take steps to eliminate the loopholes that the super-rich use in order to avoid paying their fair share of taxes—both during life and after death. Cutting the revenue stream from the transfer tax even further than it’s already been cut—and the transfer tax system has effectively been gutted under this administration—would even further inhibit our ability to provide basic services to hardworking Americans who are struggling to even make ends meet.

      ____

      Byrnes: I actually think that a bill like this would result in a greater revenue stream from wealthy taxpayers under the transfer tax system. Anyone who thinks that these “super-rich” taxpayers that Democrats keep pointing to aren’t engaging in creative—yet totally legal—tax planning strategies is deluding themselves. These strategies that are designed to reduce or completely eliminate transfer tax liability are almost always successful, legal and expensive. Cutting the transfer tax rate in half would reduce the incentive for this wasteful type of planning.

      Bloink: Americans who are fortunate enough to be able to transfer millions to their heirs are also those who are responsible for the types of dynastic wealth we’re seeing today—wealth that can effectively be shielded from tax for generations. Another tax break for this group is the last thing our country needs.

  • 0055. Accredited Investor Changes

    • The SEC definition of “accredited investor” is generally important because satisfying those criteria allows taxpayers to participate in certain private investments that are not otherwise available to the general public—usually because of a lack of publicly available information about the investment itself. Late in 2019, the SEC proposed amendments to the definition that would add new categories of individuals and expand the types of entitles that will qualify as accredited investors. Relevant criteria currently include considerations surrounding the taxpayer’s net worth, but the new definition would also consider professional knowledge, experience or certifications (for example, a Series 7 license), among other criteria.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the potential impact of the expanded definition of accredited investor.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: It’s about time we expanded the definition of accredited investor to allow more robust participation in private placement transactions and other valuable investment opportunities. Why should an individual’s net worth determine what types of investments they should be allowed to participate in? Hardworking Americans should be allowed to invest their own money wherever they see fit without the patronizing involvement of the SEC that has, thus far, mostly excluded most Americans from full participation in private investment opportunities.

      Bloink: I do agree that knowledge is an important factor in determining an investor’s ability to make educated investment decisions, but we have to remember that the accredited investor rules were developed as a form of investor protection. Broadening the scope of the definition opens the door to potentially risky investments that some Americans simply don’t have the means to bounce back from.

      ____

      Byrnes: Knowledge is a far more valuable yardstick for determining whether someone is capable of making smart investment decisions all on their own. What is it that the Democrats are always accusing Republicans of—taking steps to allow the rich to get richer to the exclusion of ordinary Americans? This expansion allows far more ordinary Americans to partake in private investments—which were previously walled off so that only the most wealthy Americans had the opportunity to invest and grow their already substantial net worth.

      Bloink: Remember that private transactions are subject to substantially more relaxed disclosure rules than those that apply in the public markets. The fact is, investors may not have access to the information necessary to put their knowledge, education and experience to work in properly evaluating the transaction—because companies are under no formal obligation to disclose it. If we’re opening the door to certain private investments based upon the investor’s capabilities in evaluating the risks and rewards associated with the transaction, shouldn’t we require the company to give them the information they need, as well?

      ____

      Byrnes: In my mind, expanding the arcane accredited investor definition would go a long way toward strengthening the economy while simultaneously giving qualified Americans an opportunity to participate more robustly in that growth. We should allow grown adults to make their own decisions about where to invest their own money.

      Bloink: We’ve also overlooked the fact that this expansion could allow big businesses yet another opportunity to profit unfairly from the 2017 tax reform legislation. Allowing more investors to qualify as accredited investors could allow big corporations to escape some of the SEC reporting obligations that can currently trigger application of the new Section 162(m) limits on the ability of corporations to deduct executive compensation. As Professor Byrnes pointed out—yet another way for the rich to get richer.

  • 0056. Home Sale Exemption Changes

    • Under current law, taxpayers are permitted to exclude up to $250,000 of gain from certain qualified property sales or exchanges (generally, sales of the taxpayers’ primary residence under circumstances that satisfy certain ownership and usage requirements).  Married taxpayers who file joint returns can exclude up to $500,000.  Recently, Democrats in the House introduced a bill that would expand this exemption for taxpayers age 55 and up.  Under the proposal, taxpayers age 55+ would be able to increase their gain exclusion by the amount of qualified contributions that they make to Roth IRAs.  Taxpayers would only be permitted to increase the exclusion if they had not previously treated the Roth contributions as qualified rollover contributions.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on this new proposal.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: This type of incentive is a valuable way to encourage taxpayers who are closing in on retirement age to fund a Roth IRA.  Traditional retirement accounts are, of course, valuable.  Taxpayers should be encouraged to fund a variety of retirement income sources with differing tax treatment to put themselves in a tax-smart position during retirement.  Giving taxpayers in this pre-retirement age group an actual tax incentive to do so is a smart way to get Americans to diversify their savings.

      Byrnes: I don’t think there should be any limit on the amount of gain that can be excluded from income on sale of a home in the first place.  Why are we talking about personal residences as though they’re really some kind of investment that should subject taxpayers to even higher taxes if they choose to move?

      ____

      Bloink:  We have to think of any real estate holding as an investment—or we risk creating a tremendous tax loophole for the super-rich, and one that these wealthy Americans would not even have to plan to take advantage of.  Section 1031’s like-kind exchange rules now only apply to exchanges of real estate.  Ordinary, hardworking Americans almost never have the opportunity to take advantage of a Section 1031 exchange of real estate.  We have to remember that the gain exclusion is geared toward everyday Americans, but also has to be limited in order to function as it’s meant to function.

      Byrnes: Well, the Roth income and contribution limits are so low that this proposal would make only a moderate difference in the first place.  Sure, some taxpayers might be able to save a few thousand in taxes if their residence has appreciated substantially over the years.  Even if this bill becomes law—which it probably won’t anytime soon—we need to go further to make any kind of difference.

      ____

      Bloink:  This bill would encourage taxpayers to think more holistically.  Retirement income security requires a package of actions.  Taxpayers need to think about their residence as a part of their asset package.  They also need encouragement to think about ways to generate tax-free income during retirement—because Roth IRA contributions don’t provide any current tax benefit.  In fact, the Roth contribution will usually cost the taxpayer today because those funds could otherwise be funneled into an account offering a current tax preference.

      Byrnes: A personal residence should not be considered an investment because, to be blunt, everyone needs a personal residence.  You sell one primary residence; you replace it with another.  Taxpayers who aren’t walking away with some windfall gain shouldn’t be punished because they decide to move.  Deciding where to live should not require some kind of complex tax analysis.

       

  • 0057. Energy Credits

    • President Trump recently released a budget proposal for 2021 that would eliminate several renewable energy tax credits, both at the individual and the business level. Credits for purchase of electric vehicles, energy-efficient homes and renewable energy investment projects would be among the credits repealed should Trump’s budget plan pass. The energy investment tax credit would also be repealed in an effort to save an estimated $7.8 billion over the course of a decade. The five-year cost recovery schedule for certain renewable energy property would also be eliminated, which would save a projected $4.8 billion over the same time period.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the potential impact of Trump’s proposal to repeal these energy-related tax credits.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: We’ve reached a point where we don’t need to provide outrageous tax incentives to encourage people to take steps toward energy efficiency and protecting our environment. These tax credits cost our country far more than they should—when really, everyone should already have an incentive to take energy efficiency seriously. Our country is seriously in debt and we need to be focusing on responsible efforts to reduce our deficit for the long term.

      Bloink: Repealing even more incentives for taxpayers to take steps to protect our environment and protect climate change is the very definition of irresponsibility. The repeal of these valuable energy credits might save money now, but in the long run it will cost the planet in ways we can barely anticipate right now. In the short term, many of these energy-related tax credits are renewed year after year—and taxpayers rely upon their availability when making longer term strategy choices. Repealing them now would also be unfair to these taxpayers who have taken the risk of making eco-smart choices at the expense of the bottom line for the greater good.

      ____

      Byrnes: Some of these energy-related tax credits do nothing more than provide perverse tax incentives to big businesses like Tesla and others—the same big businesses that the Dems are always accusing Republicans of unfairly favoring. Now that a few energy related tax credits are on the line, Democrats are all for showering big businesses with tax incentives.

      Bloink: Our energy policy under the Trump administration has set us back decades and generated an extreme mistrust among our allies in the global fight against climate change. Repealing these important energy tax credits is yet another slap in the face for taxpayers who have tried to effect real change.

      ____

      Byrnes: Energy efficiency has become a big business in and of itself. Why should companies who are making extreme profits also get to pile on tax incentives for doing so? It’s unfair to the traditional businesses that keep this country strong year after year.

      Bloink: The bottom line is that change is expensive. The United States has to step up to the plate and take its place as a leader in the fight against climate change, and that fight has to begin at home. I’d argue that even if we all believe in the importance and value of taking energy efficient measures, in some cases the financial cost remains prohibitive. It’s up to the government to step in and provide valuable incentives while much of this technology remains relatively new—and therefore, more expensive than it will hopefully be in the long run. Maybe we will someday get to the point where the energy credits will outlive their necessity, but we certainly aren’t there yet.

  • 0058. Student Loan Interest Changes

    • aHouse Republicans have recently floated a proposal that would double the currently existing deduction for student loan interest for married taxpayers. Assuming both taxpayers have their own student loan payments, each spouse would be entitled to a $2,500 student loan interest deduction on the joint tax return. Under current law, the $2,500 interest deduction cap is applied on a per-income tax return basis, rather than a per-taxpayer basis in situations where each spouse has their own student loan debt.

      We asked two professors and authors ALM’s Tax Facts with opposing political viewpoints to share their opinions on the proposed changes to the student loan interest deduction.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Helping taxpayers who are shouldering substantial student loan debt has been a hot button issue both in the political context and for employers looking to find new ways to attract and retain talented employees. Doubling the student loan interest deduction for married taxpayers provides a substantial tax benefit—and it’s a fair and reasoned compromise that makes sense, unlike many other proposals being floated by Democratic presidential hopefuls. I think this proposal is something that we can all agree on regardless of politics.

      Bloink: The issue with this proposal is that it doesn’t go nearly far enough. It doesn’t even begin to address the extremely low income phaseout rules that completely wipe out the deduction for taxpayers earning a middle-class salary. Applying the $2,500 limit on a per-taxpayer basis when each taxpayer has their own debt that they brought into the marriage? That’s something that should have been happening all along. This new proposal doesn’t even begin to scratch the surface with respect to the serious issues taxpayers with student loan debt face today.

      ____

      Byrnes: All of these extreme proposals to wipe out all student loan debt are completely unrealistic and 100% unfair. Taxpayers who financed their college and graduate degrees still have the benefit of those degrees. Yes, we can all agree that student loan debt creates a challenge for many. But it isn’t the federal government’s job to provide an added benefit for those who aren’t putting their educational benefits to work in order to increase their income and pay the debt down.

      Bloink: Professor Byrnes’ view is an extreme oversimplification. Colleges and universities rake in an outrageous profit charging extreme prices for an education today. For many professions, college is no longer an option—it is a prerequisite. Even more, a degree is no guarantee that the recipient is going to earn a certain wage or even get a job in their field at all. Schoolteachers, for example—we impose strict educational requirements on teachers who may not earn as much in a year as a single year of college costs.

      ____

      Byrnes: I understand wiping out the debt of taxpayers who were somehow misled about their college—based on some fraud committed by the school itself. And I’m obviously in favor of giving tax assistance to those who are responsibly paying down their student debt. But those tax benefits have to be reasonable. If we wipe out someone’s student loans, they still get to boast the fact that they have a degree or completed a partial course of study. I can’t see the fairness in that.

      Bloink: $2,500 in an interest deduction that phases out for all but the lowest paid of taxpayers is not enough. Taxpayers struggling with student loan debt are forced to make a choice when faced with their student loan payment every month—continue to pay down this debt or save for my retirement and my future. By not helping taxpayers struggling with debt today, we’re creating a retirement crisis down the line—and I’m not saying we forgive every dollar of student loan debt. Income restrictions and choice of profession can all factor in when determining whether to grant loan forgiveness. I’m all for reasonableness, but a $2,500 per taxpayer interest deduction cap subject to strict phaseout rules isn’t reasonable given the cost of an education today.

  • 0059. ERISA Supreme Court Ruling

    • The U.S. Supreme Court recently found that employers cannot shorten the time period over which plan participants can sue for fiduciary breach solely by posting information online or sending it in the mail. In most cases, retirement plan participants have six years to sue for fiduciary breach. The window is shortened to three years from the date the participant had “actual knowledge” of the fiduciary violation. Here, plan participants alleged their employer breached their fiduciary duties by making poor investment decisions. The employer countered that too much time had passed, because the participant had been sent all of the information that would give them notice of the violation more than three years ago. The Supreme Court found that “actual knowledge” was lacking here because plan participants testified under oath that they did not recall reading the information and did not have actual knowledge of the violation.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about this new precedent.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Anyone with a 401(k) or employer-sponsored retirement plan knows that they are constantly receiving information about the plan. Sifting through all of this material to determine what is relevant takes time and energy that most of us are unwilling to devote—and we shouldn’t have to. Requiring the participants to have actual knowledge that a violation occurred to trigger the shorter limitations period is completely reasonable given the realities of these types of plan disclosures.

      Byrnes: Giving retirement plan participants six years to sue their employers and plan sponsors for making poor investment decisions is a blow that will trickle down to the plan participants themselves. Confirming that this “actual knowledge” standard is what will apply to shorten the limitations period is yet another piece in the puzzle toward increasing fiduciary litigation—and discouraging employers from taking on the burden of offering retirement plan options to employees in the first place.

      ____

      Bloink: We don’t have a strong fiduciary rule in place to give comprehensive protection to investors. In many cases, retirement plan investments constitute the bulk of a person’s assets—if not their entire net worth. This ruling will give plan sponsors and employers an incentive to make sure that important information is laid out clearly rather than being hidden within volumes of complex material.

      Byrnes: The details of how “actual knowledge” is established are lacking in this opinion, creating a gray area that is only going to increase 401(k) fiduciary litigation and increase the cost of these plans all-around. Can a participant read a notice sent by the plan sponsor, forget about it and reasonably claim that they do not have actual knowledge?

      ____

      Bloink: The bottom line is that the supreme Court ruling is completely reasonable. “Actual knowledge” means “actual knowledge”—the participants actually had to know about the violation. A primary purpose of having a limitations period is to incentivize the swift resolution of cases like these. If the employee did not know about the violation—as it’s reasonable to assume they would not absent some executive role—they have no way of protecting their rights.

      Byrnes: Based on this decision, the shorter three-year limitations period is essentially nullified. Plan participants can always say that they don’t remember reading the information or that they didn’t understand the information. It’s opening the door to even more widespread litigation and, as such, is something that Congress should take steps to clarify within ERISA itself.

  • 0060. Wayfair Supreme Court Ruling

    • Small business owners have recently joined together in petitioning Congress to take action over the recent Wayfair Supreme Court ruling. In that ruling, the Supreme Court held that it is no longer necessary that an online retailer also have a physical presence in a state in order for that state to impose state and local sales taxes with respect to the retailer’s activities. Since the ruling, many states have imposed state-level tax requirements for online retailers who make sales to state residents regardless of the business’ location.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the impact of Wayfair generally, as well as the small business coalition concerns.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: I agree with the small business owners here. The requirement that small online retailers collect and pay state-level taxes for online sales results in a situation where these business owners simply cannot compete in the modern marketplace. The modern reality is that an online sales presence is a virtual necessity to allow any business to compete with the Amazons of the world. Requiring small business owners to make the choice between selling online and growing their business is sure to hurt the economy as a whole.

      Byrnes: Requiring every business who makes sales to state residents to collect and pay sales tax is the only way to provide equality between traditional, brick-and-mortar business owners and the online sellers who would put them out of business. Yes, we all know that shopping has largely transferred to the online world—but that does not mean that we should, at the government level, take sides in a way that would destroy physical small business owner’s ability to compete.

      ____

      Bloink: Allowing Wayfair to stand unfettered as the law of the land only contributes to the “Amazon-ation” of the Internet sales world. Large companies have the economies of scale needed to make it possible to implement systems that can easily comply with a myriad of state-level online sales tax rules. Small business owners can never compete with that level of resources and will be forced to charge prices that would simply put them out of business.

      Byrnes: Wayfair’s protection of the real-world retail marketplace is important and should be allowed to stand. States have their own ways of protecting small business owners from online giants like Amazon and Wal-Mart. They can provide exemptions for smaller owners who would not have the resources to compete on the same level as the Amazons of the world and they don’t need Congress to do so.

      ____

      Bloink: What’s overlooked in that argument is the fact that the small online retailer still has to develop a system that will comply with all of the state-level exemptions and rules. Every state has the freedom to draw the “small business” line differently and the need to comply with those rules is enough to put may small online retailers out of business—or simply shift them over onto the Amazon marketplace. We’re talking about thousands of potential jurisdictions when localities are taken into account. This is going to decrease job growth as these business owners must choose between investing in growing their company or selling online.

      Byrnes: The smallest business owners have, thus far, been protected by state-level exemptions from the online sales tax rules. If a business owner is on the fence, it’s likely not a small business at all, but simply looking for a more economical way to compete or get around the requirement of assessing sales taxes.

  • 0061. Targeted Industry Relief COVID-19

    • One of the many proposals that has been floated to combat the impact of the growing crisis over COVID-19 involves providing targeted economic relief to industries and companies most impacted by the virus’ spread. In the past days and weeks, airlines have had to sharply cut back on flights offered and hotels have seen widespread cancellations as non-essential travel plans have been cut both at the business and personal levels. The cruise industry is also expected to suffer economically as a result of the virus. Several ideas to help these industries have popped up, including providing tax deferral benefits and offering outright economic assistance.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about this aspect of the proposal to combat the growing economic crisis.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Businesses are suffering because of a situation that is beyond their control. We need to take swift action to support these businesses in the travel and airline industries, among others, in order to prevent an even more widespread global crisis. That action should come in the form of fast, direct financial backing.

      Bloink: I do agree that businesses—especially small businesses—are suffering because of a global pandemic that they have no ability to control. I recognize that the government has to take action and must take action quickly. However, any relief that specifically provides tax benefits targeted at big businesses has to be met with a degree of skepticism. Propping up big business may not be the best way to help when it is the entire country that is likely to suffer from this outbreak.

      ____

      Byrnes: Providing tax deferral benefits and even tax credits specially designed for impacted industries may be the only way to keep those industries afloat if the fear associated with this virus turns out to be here for the longer term. It’s like a natural disaster—when individuals find themselves suffering through an unprecedented event caused by something out of their control, the government steps in to help.

      Bloink: I think the help that could be provided should be primarily focused on small businesses and individuals. What we need right now is paid sick leave for workers lacking these benefits. Financial support for small businesses that may not have the financial reserves to stay afloat during a protracted crisis. Tax breaks targeted at multi-billion dollar corporations could use a worldwide crisis to provide even more substantial tax breaks to big business.

      ____

      Byrnes: Allowing the travel industry to fail is simply not an option. We have to provide some type of relief immediately in an attempt to offset the steep losses. If we wait until the dust settles, it may be far too late to combat the domino effect that these kinds of economic challenges can cause.

      Bloink: I’m not suggesting that we allow the travel industry to fail. I’m not in favor of using widespread fear over a health crisis to benefit big business. At a time when everyone is suffering, we need to focus on those who need help the most and are the least unable to help themselves. If we emerge from this crisis and see a travel industry that is not bouncing back, then we step in to provide targeted relief. Right now, we need to focus on the crisis at hand, which is helping small business owners and ordinary Americans through this crisis.

  • 0062. Cruise Ship Relief

    • The hospitality industry has taken an early and severe financial hit from the coronavirus pandemic. In recent weeks, President Trump and others have floated ideas to provide financial relief in the form of tax credits and other incentives to the cruise industry. Some of the initial U.S. cases of coronavirus are believed to have originated on cruise ships, where passengers generally share close quarters during their trips. Many believe that the significant media coverage of coronavirus aboard cruise ships could have a long-lasting financial impact on the viability of these businesses, generating speculation over the types of federal assistance that might be provided.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on a potential federal bailout of the cruise industry.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Cruise lines are an important industry that has been among the hardest hit by the coronavirus pandemic. Allowing these businesses—many of which have substantial ties to the U.S.—to fail will put thousands of American workers out of a job. The hospitality industry itself is going to take a tremendous financial hit because of this virus and we need to do everything we can to keep industry workers employed.

      Bloink: A cruise bailout should be at the very bottom of our list of priorities right now. The substantial investment that would be needed to prop up that industry right now has to be directed toward industries in the U.S. that pay their fair share of U.S. taxes and are equally in need of financial help. For decades, cruise lines—which operate in international waters—have done everything they can to avoid paying U.S. taxes and now must wait their turn behind others who have paid their fair share.

      ____

      Byrnes: Regardless of how cruise lines are organized for tax purposes, we cannot deny that they have a tremendous impact on our economy. Most of the major cruise lines conduct operations out of U.S. ports—many in Miami and Fort Lauderdale. Thousands of workers depend upon their viability as a going concern. Ignoring their unique needs in this time could create a ripple effect that would impact the overall economy in the U.S.

      Bloink: We have to prioritize in a crisis situation like this. Cruise lines are notorious for using structures that take advantage of offshore tax havens and tax loopholes to avoid paying U.S. federal taxes. Remember that this is completely legal—cruise ships are allowed to exempt from taxable income amounts earned by a foreign corporation on international waters, even if passengers were picked up in the U.S. When we are facing a pandemic of this magnitude, we first need to focus on what really matters—providing relief to small businesses and individuals who have been impacted the most.

      ____

      Byrnes: The largest of the cruise lines are based out of Florida. The U.S. has an obligation to support all businesses and individuals who are impacted by this pandemic, which is causing financial havoc that they cannot control. Providing a cash infusion or tax deferral mechanism for this industry could help keep them viable for workers who are in need of a paycheck. Cruise ships have already announced a 30-day suspension of operations. That suspension is likely to be longer. With the bad press generated by the coronavirus, it is doubtful whether these companies will even survive without help.

      Bloink: Remember that we’re talking about an industry that may be ‘based’ out of Miami—but has taken great pains to maintain parent companies offshore to avoid U.S. taxes. Cruise lines cannot take great pains to avoid U.S. taxes and then with the other hand expect relief from the U.S. government when struggling. I don’t think that providing relief to the cruise lines should even be on our radar during these early stages of this financial and health crisis.

  • 0063. COVID-19 Cash (Stimulus) Payments

    • As most have surely heard, Section 2201 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) gives many Americans the right to an automatic stimulus payment in response to the financial ramifications of the COVID-19 outbreak. Single taxpayers with AGI of under $75,000 will be eligible to receive a one-time $1,200 payment (the AGI limit for joint filers is doubled to $150,000 and the payment is similarly doubled to $2,400 per couple). Taxpayers with AGI that exceeds the threshold will be subject to a phase out, and single filers with AGI of over $99,000 ($198,000 for joint filers) will not receive a stimulus payment. Taxpayers with children will be eligible for an additional $500 per child payment.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the potential impact of the stimulus checks—and whether the one-time payment will be enough.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Getting cash to Americans quickly is one of the most effective things we can do to help in the face of this unprecedented pandemic that has impacted everyone. The “no questions asked” financial help created by the CARES Act is exactly what we need to get money to Americans without the red tape of having to go through a complicated application or approval process.

      Bloink: While it’s admirable that the CARES Act gets a small amount of cash to Americans quickly, it doesn’t go nearly far enough. What the law does is set us up for a situation where, to provide effective economic stimulus, Congress is going to have to go through another round of negotiations and votes that will really delay getting meaningful help to our low-income communities. $1,200 might get the hardest-hit American through a month—maybe—but then what happens? That’s the question we need to be asking.

      ____

      Byrnes: Low- and middle-income families are suffering across the country right now. The entire hospitality industry has essentially shut down. Workers are struggling to apply for unemployment benefits—which have also been expanded in a positive move—and they need something to tide them over until those benefits kick in to provide stability. The process for getting unemployment benefits is anything but simple—and the system is currently overloaded.

      Bloink: If we look at the model provided by European countries who have been in the middle of this crisis much longer than us, it’s clear that we can do more and we can do better. Additional federal unemployment benefits will help, yes. But many Americans are already looking into diving into savings—if they haven’t already depleted any available savings waiting for help to arrive. The government has an obligation to make sure that help is meaningful if we want to avoid protracted economic problems.

      ____

      Byrnes: The point of the stimulus checks is fast relief to help our economy from sinking any further and to help taxpayers pay their bills. We need to make sure Americans can pay their rent and their mortgages, and feed their families, right now. This CARES Act stimulus provision is simple and it will be effective.

      Bloink: The law does seem simple on its face, yes. But what about how we get the help to taxpayers? We need a provision in the law to get extra help to those for whom a single $1,200 check is not going to help. Yes, get money to the people quickly without red tape. But also focus on those taxpayers who have been hardest hit by the fallout and give them a means for requesting the help they really need. The law provides for small business loans—many of which can be forgiven—which is great. Maybe a similar provision at the individual level could help get money out quickly, and let taxpayers follow up with the documentation later.

       

  • 0064. COVID-19 SALT Cap

    • Democrats in Congress have again floated a plan to eliminate the cap on the federal tax deduction for state and local taxes (the “SALT cap). For tax years beginning after 2017 and before 2026, the SALT cap limits the deduction for state and local taxes to $10,000 per tax return ($5,000 for married couples filing separately). Unlike previous proposals, however, the new proposals call for retroactively eliminating the SALT cap. The proposal would allow taxpayers to amend their tax returns for 2018 and 2019 for a refund. The move comes in the midst of the COVID-19 economic crisis, as a means to providing taxpayers with additional disposable income to fuel the economy.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on whether now is the time for rolling back the SALT cap.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Eliminating the SALT cap right now is one way that we can help taxpayers in states that have undoubtedly been hit hardest by the COVID-19 pandemic to date. High tax states like New York, New Jersey and Illinois have seen the most substantial early impact from this pandemic, and those taxpayers need assistance now—not sometime down the road when the next $1,200 check arrives.

      Byrnes: Rolling back the SALT cap now gives a huge tax break to the rich at a time when lower income Americans need help more. I’m surprised the Dems are even pushing for this in the light of the limits that have been placed on the current stimulus payments—which begin to phase out at $75,000/$150,000, depending on filing status (moderate income levels to say the least). The SALT cap primarily hurts those whose incomes well exceed those levels.

      ____

      Bloink: The SALT cap introduced a strange inequality into the federal tax code in the first place. It imposes a tax penalty based solely on where someone chooses to live—and creates a system where those taxpayers are actually subject to a form of double taxation. In these challenging economic times, this is one area where we can help taxpayers make ends meet.

      Byrnes: I’m not in favor of using this global crisis to undo a law that was properly passed. Eliminating the SALT cap would reduce federal revenue streams by billions—an estimated $77 billion to be precise. And it might not help stimulate the economy.

      ____

      Bloink: Whether the SALT cap repeal is painted as economic stimulus, righting a wrong or simply providing targeted relief to taxpayers in states that have been hit the hardest—it’s the right thing to do. The bottom line: taxpayers are hurting. The economy has sunk to levels we haven’t seen in decades and it’s difficult to see the road to recovery. The SALT cap is an economic penalty that singles out taxpayers in high tax states and applies to the middle class as well as the rich. Repealing the SALT cap only within certain AGI bands is another option, but also adds a layer of complexity for taxpayers already struggling to determine which relief they might receive.

      Byrnes: Democrats who oppose the SALT cap talk in terms of equality. But eliminating the SALT cap right now would provide relief to taxpayers based solely on where they live, as well. This proposal favors taxpayers who live in high tax states at the expense of others who need help just as badly—it not more so—during these times. I think the stimulus law we are working with right now is enough—if we need to provide more economic relief down the road, it should be done across the board.

  • 0065. CARES Act Charitable Relief

    • The CARES Act made several changes designed to encourage charitable giving during the COVID-19 outbreak. For the 2020 tax year, the CARES Act amended IRC Section 62(a), allowing taxpayers to reduce adjusted gross income (AGI) by $300 worth of charitable contributions made in 2020 even if they do not itemize. Under normal circumstances, taxpayers are only permitted to deduct cash contributions to charity to the extent those donations do not exceed 60% of AGI (10% for corporations). The CARES Act lifts the 60% AGI limit for 2020. Cash contributions to public charities and certain private foundations in 2020 are not subject to the AGI limit (contributions to donor advised funds, supporting organizations and private grant-making organizations remain subject to the usual AGI limits).

      Individual taxpayers can offset their income for 2020 up to the full amount of their AGI, and additional charitable contributions can be carried over to offset income in a later year (the amounts are not refundable). The corporate AGI limit was raised to 25% (excess contributions also carry over to subsequent tax years).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the potential impact of the expanded charitable deduction rules.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: We are in unprecedented times, and some taxpayers want to find a way to help others more than ever—while other groups of Americans need that help more than ever. Americans desperately need the relief provided by charitable organizations right now and we have to find a way to encourage giving to prevent suffering to the extent possible. The CARES Act expansion accomplishes this goal on two fronts: (1) encouraging ordinary Americans to give by providing a tax benefit they usually would not receive and (2) encouraging wealthy and corporate taxpayers to give even more.

      Bloink: I am in favor of encouraging increased charitable giving and do think allowing the charitable contributions deduction for non-itemizers is a great idea. On the other hand, lifting the AGI cap entirely and allowing the deduction to carry forward even when it exceeds AGI only provides yet another way for the wealthy to engage in tax minimization strategies. Ordinary Americans who could really benefit from lifting the AGI cap would still have to itemize to claim any more than a $300 benefit—and most average Americans do not have $24,800-plus to give (the amount needed to exceed the standard deduction for joint returns so that itemizing makes sense).

      ____

      Byrnes: Lifting the AGI cap on cash charitable contributions only encourages wealthy taxpayers and corporations to give even more to charity, which is exactly what we need right now.

      Bloink: Wealthy taxpayers are the only group with the ability to make cash contributions to charities that exceed 60% of their annual income. Average Americans simply do not have the means to take advantage of this tax benefit. Allowing corporations to give up to 25% of annual income provides yet another tax break to big business at a time when this country sorely needs revenue.

      ____

      Byrnes: The $300 above-the-line deduction motivates average Americans to give what they can and removing the AGI cap gives wealthy individuals the tax incentive they need to contribute in a down economy. The revenue impact is an issue that will have to be dealt with separately while we aim to provide relief on many fronts right now.

      Bloink: It is a balancing act. But the charitable contributions deduction has always been a balancing act. We do need to incentivize charitable giving, but the 60% cap was increased from 50% only two years ago. 60% is a substantial number. Eliminating that cap entirely is likely to have only a moderate impact on motivating increases in giving—unless the taxpayer is actively seeking ways to eliminate tax liability. Low and middle-income Americans who want to give to charity are going to give what they can regardless of the tax implications. If we’re trying to help Americans with this break, the $300 above-the-line deduction is what we should expand in order to both encourage giving and provide a tax break to ordinary taxpayers.

  • 0066. No Double-Dipping Rule

    • The CARES Act provides widespread relief to employers of all sizes in order to encourage employee retention and provide a lifeline to keep businesses afloat while most Americans remain subject to “stay-at-home” orders. Payroll protection loans give small and mid-size employers the option of borrowing Small Business Association funds that can later be forgiven entirely if used for permitted purposes (such as employee salary and health insurance costs). However, employers who choose to take advantage of the payroll protection program are not entitled to the benefit of certain CARES Act tax credits, including the employee retention tax credit (which is available in advance, allowing the employer to withhold certain IRS tax deposits). This “no double dipping” rule is designed to prevent employers from receiving the double benefit of loan forgiveness and other tax benefits with respect to the same amounts.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the rules restricting the availability of payroll tax credits to payroll protection loan recipients.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: We are fully in uncharted waters here and the government is doing everything that they can to help small businesses survive through an unprecedented global event. We want to help, but also have to be proactive to make sure that funding is available to provide relief to everyone who needs it. That means certain limitations do have to apply. Funding for these generous programs is not unlimited. Importantly, the government continues to need revenue to make sure those who need help most are able to receive that help.

      Bloink: I understand that it’s a fine line between providing short-term, emergency relief and considering the long-term economic impact of these massive government-funded programs. But small and medium sized businesses need relief right now. Despite best intentions, the loan programs that are currently available have been plagued with glitches and procedural hiccups that have prevented business owners from getting their loans. Business owners should not have to worry about negative repercussions down the line in choosing one option over the other at this point.

      ____

      Byrnes: I agree that help is needed, but also think we have to look forward to the future. The economy is taking an extreme hit right now. Allowing double dipping into government benefits for the same exact funds would do more harm than good in the long run, especially once we reach the recovery stage.

      Bloink: We need to let all small business owners take advantage of immediate relief, right now, and the only available relief immediately available is the ability to withhold paying over employment taxes to the IRS via the credit process—however the credits won’t be sufficient for many business owners. Payroll protection loans are neither immediate nor automatic. The application process has been complicated on many fronts and the initial funding has already run dry. Whether or not additional funds are allocated quickly, business owners are still waiting to get decisions on applications filed well before the funds officially ran dry.

      ____

      Byrnes: Giving a small business a tax-free cash infusion (whether called a loan or not, many of these loans will be forgiven entirely) to pay employee salaries and then, in turn, letting the employer take a tax credit for the same salary….that’s a prime example of double dipping that would do more harm than good in the long run.

      Bloink: The bottom line is that small business owners are in a situation where they have to retain their payroll tax deposits just to stay afloat. It may be the only option for many. Loan forgiveness isn’t automatic either, and this might just be the type of situation where we have to give businesses flexibility in taking advantage of all available options and worry about picking up the pieces later.

  • 0067. COVID-19 Social Security Tax Proposal

    • Among the many proposals being floated to help Americans who are suffering unprecedented financial losses in the wake of the COVID-19 pandemic is a proposal to change the way Social Security benefits are taxed. Current law imposes tax-based restrictions on outside earnings—meaning that many seniors who also work are penalized by a retirement earnings test that reduces benefits by as much as around $1 for every $2 in outside earnings in excess of certain caps ($48,600 for those who will reach normal retirement age in 2020). Younger Social Security recipients are subject to even more restrictive caps. The proposals would eliminate those caps for this year to provide financial relief for seniors claiming Social Security benefits.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on proposals to lift the Social Security earnings restrictions for 2020 (and potentially beyond).

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: So many retirees and other seniors are struggling financially. This is a group of people who rely more heavily upon invested assets than anyone else in America. Letting seniors go back to work without worrying about the tax implications for their Social Security payments is one easy way to help struggling seniors make ends meet during a financial crisis. Some of these seniors have even retired from essential positions—going back to work, even on a limited basis, could help ease the burden on those essential workers who are keeping America running right now.

      Bloink: Yes, retirees have experienced unprecedented financial losses in the past weeks and months. However, we are dealing with much more than a financial crisis. We are dealing with a public health crisis—and seniors are among those most vulnerable from a health perspective. Encouraging this vulnerable group to go back to work as a way to cope with the financial losses? That’s not the best way to go about providing relief because we’re then putting those seniors in harm’s way.

      ____

      Byrnes: Alternative solutions to keep seniors at home while we deal with the pandemic would be great. The unfortunate financial reality is that, for many seniors, working during retirement is not optional. Average retirees worry about whether their retirement savings will last through retirement during normal times. After crushing market losses in the past few weeks, many are feeling the need to return to some type of work to protect their financial future. They shouldn’t be punished for taking control of their own financial security.

      Bloink: Our focus should be on increasing the Social Security benefit that seniors have already earned to provide a living wage. We shouldn’t even be talking about lifting earnings restrictions to motivate more seniors to go back to work. We should be talking about providing a Social Security benefit that allows retirees to put food on the table without worrying about going back to work—and shoring up pensions to make sure seniors continue to receive their pension benefits.

      ____

      Byrnes: Seniors should be allowed to make their own choices as we work through this. Increasing Social Security benefit levels is a slippery slope that we can’t afford to go down right now. The government is exploring ways to provide benefits for nearly every American—because this crisis is impacting everyone. Democrats want to focus on increasing Social Security benefits, but offering higher benefits on even a temporary basis is a slippery slope that will inevitably lead to payroll tax increases that Americans and small business owners can ill afford right now.

      Bloink: Focusing on the Social Security outside earning restrictions is almost a red herring in this situation—it’s a distraction from the potential options that might actually make a difference to seniors who are suffering financially. Until it’s safe, seniors should not be encouraged to put their health at risk to earn a few extra dollars—and in reality, the impact on any given retiree’s wallet would be minimal here. We need to take stronger action to provide direct relief rather than encouraging seniors to go out and try to find jobs that might not even exist for months to come.

  • 0068. Expanding 529 Plans COVID-19

    • In the wake of the COVID-19 pandemic, Republicans in Congress have renewed calls to expand access to Section 529 plans so that taxpayers could take tax-free withdrawals to fund expenses for homeschooling children. Similar proposals have been rejected several times recently—and were excluded both from the 2017 Tax Cuts and Jobs Act and the 2019 SECURE Act. Currently, Section 529 plans are funded with after-tax dollars. Withdrawals—including earnings on contributions—are taken tax-free as long as they are used to fund qualified education expenses, which include costs for college tuition, room and board, private secondary school and a myriad of other education expenses.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether Section 529 plans should now be opened to allow tax-free withdrawals for homeschooling costs.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Americans are now being faced with the unprecedented challenge of homeschooling their children as schools across the country close—and it is far from certain whether future interruptions will continue into the coming years. Some of those taxpayers need the financial relief that their after-tax Section 529 plan contributions can give and should be allowed to use those funds to meet their current needs.

      Bloink: Realistically, expanding 529 plan access to allow funds to be used for homeschooling is not going to get relief to those Americans who need help with homeschooling costs. If an American has already funded a 529 plan, they likely are not going to be financially unable to purchase laptops, tablets or wireless internet—they will already have those items. As far as curriculum and books go—schools are ramping up efforts to have more robust plans in place to provide access to quality education on a remote basis if future closings become needed. This plan is just a way to allow the already-wealthy to access savings earmarked for college on a tax-free basis.

      ____

      Byrnes: Every American is suffering right now. We can’t make blanket statements about one family’s past ability to fund a 529 plan and their current need for tax-preferred funds to help with homeschool costs. Americans should have access to their own savings without question.

      Bloink: Americans who cannot afford homeschooling supplies are extremely unlikely to have had the disposable funds to set up a Section 529 plan to fund future education costs in the past. Further, opening up these plans now would only kick the can down the road when it comes with dealing with how to fund future education costs. Meanwhile, the 529 plans that are funded could be raided to cover the cost of expenses that have nothing to do with homeschooling, as wealthy taxpayers cherry pick which tax-preferred savings accounts to access.

      ____

      Byrnes: 529 plans are funded with taxpayer dollars—and those same taxpayers need to be able to ensure that their children’s education continues with as much stability as possible. How those taxpayers choose to spend their own hard-earned money should be up to them. We’re giving taxpayers access to retirement funds on a penalty-free basis. Why shouldn’t others also have the option of tapping a Section 529 plan to cover their current homeschool needs rather than waiting to use those funds in an uncertain future.

      Bloink: We need to put our primary focus on helping those Americans who truly cannot shoulder the cost of homeschooling right now. With summer looming, we have time to consider how to best approach the ongoing need for homeschooling in the fall and, perhaps, on a periodic basis into the future. We shouldn’t jump at the opportunity to let taxpayers drain tax-preferred accounts earmarked for children’s’ future education needs without carefully considering all sides of the equation—and putting safeguards in place to require substantiation of how the funds are used.

  • 0069. Payroll Tax Cuts

    • President Trump has repeatedly stated that any new wave of coronavirus relief for Americans would have to include a payroll tax cut in order to obtain his signature. In general, the payroll tax is an employment tax split evenly between employer and employee—with each responsible for paying over 6.2% of the overall payroll tax. Payroll tax “holidays” have been introduced at various points in history in order to stimulate consumer spending and economic growth—most recently, in 2011 and 2012, in response to the real estate crisis of 2008-2010, when the payroll tax was cut by 2%.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether a payroll tax cut is a smart way to provide economic stimulus in the wake of COVID-19.

      Below is a summary of the debate that ensued between the two professors.

       

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Cutting payroll taxes in the wake of the COVID-19 pandemic is a completely reasonable response to help taxpayers mitigate the financial hit. As market selloffs in the past weeks and months have shown, we need to provide economic stimulus to prevent further harm to our economy and we need to do it quickly. The payroll tax applies to every American with a job—rich or poor, just as the virus has hurt the rich and the poor alike. It’s worked in the past and it will help our economy again.

      Bloink: A payroll tax cut is not going to make a dent right now—and in general, a payroll tax cut is far from the best way to help Americans weather a financial crisis. These types of cuts have had little impact in the past. Most importantly, a payroll tax cut is going to do absolutely nothing to help the millions of Americans who are currently not working. Remember that in 2011 and 2012, the economy had already begun its rebound—had the tax cuts been implemented sooner, they would have done nothing to help those out of work.

      ____

      Byrnes: Those Americans who are working need a financial boost, as well. High payroll taxes stifle economic growth and lead to smaller paychecks for the Americans who need economic relief on multiple fronts right now. Americans who have not lost their jobs—and who may not even qualify for other forms of government relief to date—should be encouraged to support the economy in the only way they can: by spending. A larger paycheck does just that.

      Bloink: The CARES Act already allows business owners to defer paying over their payroll tax deposits in order to generate a source of business liquidity. Payroll tax cuts deplete the very programs for which we should actually be shoring up funding, like Social Security and Medicare.

      ____

      Byrnes: We don’t have time to wait for another round of stimulus checks to be mailed out. Every week, payroll taxes take a bite out of Americans’ paychecks and this is one important way to provide across-the-board relief so that people can pay their bills and continue to support the economy. Payroll tax cuts might not seem like much, but they have a trickle-down effect that will serve to support small businesses and create more opportunity for job growth as we begin to recover.

      Bloink: Trump’s continued insistence on a payroll tax holiday is absurd. Payroll tax cuts will not help millions of Americans who are out of work and not subject to the payroll tax at all. We need to focus on health initiatives and direct aid to families and businesses in the form of cash infusions, rather than continue to focus on a miniscule tax cut that will do little if anything to help in the long run.

  • 0070. CARES Act: NOL Break

    • One of the CARES Act provisions designed to increase liquidity for struggling businesses allows corporations to carry back net operating losses (NOLs) incurred in 2018, 2019, and 2020 for five years. Post-tax reform, these NOLs could only be carried forward. For tax years beginning prior to January 1, 2021, businesses can now offset 100% of taxable income with NOL carryovers and carrybacks (in other words, the 80% taxable income limitation imposed under the 2017 tax reform legislation was lifted). With respect to partnerships and pass-through entities, the CARES Act delayed the effective date for the new excess business loss rules until 2021 (also lifting the 80% limitation).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about this tax break for corporations and other business owners.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Businesses are struggling across the board. Relaxing the 2017 tax reform changes to provide liquidity relief to these struggling business owners is an important way to keep these business owners afloat. Aside from direct handouts, there are only so many tools in the government’s arsenal, and this is an important way to allow business owners to use losses to offset income tax liability while we work through this pandemic.

      Bloink: Yes, business owners are struggling. So are average Americans. The NOL relief provision gives help where it’s needed the least. Every business qualifies under the NOL relief rules—even those businesses that have remained profitable, or even become more profitable, in the wake of COVID-19. Businesses who have received bailouts remain eligible. The revenue that would have been received through keeping the rules the same could be used to put food on tables across the country.

      ____

      Byrnes: This is basic trickle-down economics. When businesses are able to operate profitably, the entire country benefits from a strong economy. If we can keep businesses afloat, Americans will eventually be able to return to work as we begin to reopen the country. Everyone wins even though the NOL relief appears to solely benefit business owners.

      Bloink: Basic rules of trickle-down economics don’t seem to work here. Many Americans are afraid. They don’t feel secure in their jobs and they don’t know how long their money will last. The stimulus payments barely made a dent for most people. Sure, the business can remain open, but a vast portion of the American public isn’t buying anything but essential items. Funds would be better allocated to the American people themselves to provide them with the sense of security needed to, well, give those business owners business.

      ____

      Byrnes: Keeping small businesses open in the short-term is exactly what is going to help us in the long run. There will soon some a day when Americans are, once more, financially secure and comfortable with discretionary spending. We need to make sure that the businesses still exist in order for the economy to have any hope of a meaningful rebound as we reopen.

      Bloink: The NOL tax break creates another bailout for big business at a time when ordinary Americans are going hungry and can’t pay their bills. Big businesses have already reaped something like $135 billion in aid and JCT estimates show that over 80% of CARES Act benefits will go to Americans making over $1 million per year. I do believe that we have to do everything we can to help business owners, as well as individuals. But in reality, we need to consider the efficacy of these various options and choose those that are tailored to actually help Americans who are suffering. We need a new round of stimulus and it has to focus on the American people. Rolling back the NOL relief can help fund that stimulus.

  • 0071. Home Office Deduction

    • In the wake of the COVID-19 pandemic, one potential relief option that has been floated involves reinstating the home office deduction for employees. Many employers plan to continue allowing (or requiring) employees to work from home even as businesses begin to reopen to limit contact between employees in the office. As a result, many of these employees have upgraded spaces within their homes to function as a home office. Prior to the 2017 tax reform legislation, employees were permitted to deduct expenses related to the business of being an employee—including expenses related to maintaining a home office—as a miscellaneous itemized deduction. Democrats in the Senate have proposed reinstating this home office deduction for employees in past legislation and have once again floated the proposal.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the potential impact of restoring the home office deduction for employees.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Workers are struggling on so many fronts right now. Homes have been turned into offices, schools and day care centers—creating a very real need for employees to invest in home office infrastructure within the home. Some have been required to buy additional equipment or upgrade a spare room in order to continue working during the shutdown. These employees should not be penalized for these ongoing expenses—bringing back the home office deduction is one way to make sure that rank and file employees are receiving the benefits they need.

      Byrnes: Democrats are always giving speeches about the need to give help to those who really need it. An employee who keeps his or her job and has the funds (and extra space) to put quickly put together a functioning home office is likely not among the “rank and file” employees that need help the most.

      ____

      Bloink: Many employees have been forced to incur substantial expenses in establishing a home office—perhaps for the first time ever. Upgrading technology to meet the needs of both business and personal use in the home can be expensive. These employees should not be left on the hook for those costs, and many business owners are in no position to reimburse their employees for home office expenses given the current economic climate.

      Byrnes: Reinstating the miscellaneous itemized deduction for home office expenses is a step backward, a step toward re-complicating a tax code that we just took such great pains to simplify. This is the opposite of what Americans need right now. Stimulus and help for the businesses that support these employees is a much smarter way to go, without the lost revenue that we would see from reinstating the deduction.

      ____

      Bloink: Let’s face it. Many of these employees are going to be working from home indefinitely as we continue to social distance and try to keep office workers safe. Reinstating the home office deduction is for employees is one extremely simple way that we can help these employees receive some offset to the costs they have incurred. We need to take a more modern and realistic approach to the home office expense deduction given the current realities of our world right now.

      Byrnes: The home office expense deduction for employees was always a miscellaneous itemized deduction subject to the 2% floor. That means that employees could only deduct these expenses if their miscellaneous itemized deductions exceeded 2% of their adjusted gross income. For many of the Americans who this would benefit, those home office expenses would have to be extremely significant given that all of the other miscellaneous itemized deductions remain suspended through 2025. I don’t think we should be using valuable resources to allow high-income employees to remodel their homes and upgrade their electronics. It is very unlikely that ordinary workers would have the funds laying around to satisfy the requirements for the deduction anyway. We would be complicating the tax code with very little benefit to those who really need help.

  • 0072. Small Business Association (SBA) $2M Threshold

    • The CARES Act created the Paycheck Protection Loan Program to provide help for the most financially vulnerable small business owners in the wake of the COVID-19 pandemic. PPP loan availability has created controversy since the inception, however. Business owners who arguably did not need access to the funds or for whom the program was not designed initially received large loans, while small business owners struggled to receive needed funds. As a result, the Small Business Association (SBA) responded by requiring business owners to certify in good faith that they needed the funds because current economic uncertainty makes the loan necessary to support ongoing operations. The guidance also provides that borrowers with loans of less than $2 million will be deemed to have made the certification in good faith—and will avoid future SBA review.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the firm $2 million SBA limit.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: We have to draw the line somewhere. SBA review of every single paycheck protection loan granted would be an administrative nightmare. It would also create significant uncertainty for small business owners who need to borrow the funds, but might be hesitant for fear of future negative repercussions or a claw back that they cannot afford. The firm cap gives small business owners the certainty they need to focus on reopening their businesses and providing employees with stable paychecks.

      Bloink: The $2 million amount is completely arbitrary. I realize that we need to draw the line somewhere. Why $2 million? The small business owners that this program was really designed to help likely do not need a $2 million loan to cover 8 weeks’ worth of payroll costs. Even assuming that the funds are used to pay permitted expenses, a $2 million loan makes me think that the borrowing business is much larger than those we really need to be focused on helping.

      ____

      Byrnes: There is no feasible way for the government to review every single small business loan made in response to the pandemic to ensure that each loan was made in good faith. It would be difficult to even verify whether the loan funds are used for their intended purposes. The SBA has the best information when it comes to deciding that $2 million is a reasonable loan amount for small and mid-sized businesses.

      Bloink: The $2 million limit brings much larger businesses into the mix. Setting the threshold so high actually increases the odds that larger companies will apply for loans that they don’t truly need. I agree with the need to provide certainty for small business owners, but what this law actually does is provide certainty that a business—regardless of need—can take out a $2 million loan without fear that their certification will later be questioned.

      ____

      Byrnes: The SBA has decided that businesses with loans under $2 million are unlikely to have any other significant source of liquidity and we need to stand by that line so that we can focus on the ongoing need for further relief.

      Bloink: I’m fine with setting a cap of some sort, but I do think the bar should be much lower. I also think that the SBA guidance should make clear that any loan can be reviewed and questioned at a later date for cause. As written, the rule gives any business owner complete freedom to borrow even if they have access to alternate liquidity sources. This takes funds away from the small business owners who have no other options and for whom this program was really designed.

  • 0073. COVID Tax Credit Proposals

    • Relief packages for small business owners in the wake of the COVID-19 pandemic have been heavily focused on maintaining staffing levels. Employers have tax credit options available that are based on amounts spent to continue paying employee salary during time spent away from work and for retaining employees even in the face of the unprecedented economic downturn. A new tax credit proposal would provide a tax credit to help employers with some of the fixed costs associated with their businesses. The Keeping the Lights on Act would provide a 50% refundable tax credit against employment tax liabilities for expenses like rent, mortgage costs and utilities.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the newly proposed tax credits and their potential impact.

      Below is a summary of the debate that ensued between the two professors.

       

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Employers are, quite literally, having a hard time keeping their lights on. This bill would provide a valuable tax credit for employers who have seen their revenue drop by an unprecedented 50 percent or more in the space of only a few months. These employers may have been able to hold out for a few months and keep the doors open. Most are going to need help with fixed costs while grappling with customer demand that remains comparatively low while we continue to recover.

      Byrnes: This is another example of legislative relief being provided in piecemeal form. Sure, employers have an ongoing need for relief—which is why we just expanded the paycheck protection program to give those employers even more flexibility. Under the new rules, up to 40% of a loan’s value can be used to cover the very fixed costs that this proposal is aimed at. That is the type of relief we need right now, not an entirely new law.

      ____

      Bloink: Yes, PPP loans that can be used to cover some of the fixed costs of running a business. We have to remember that some of these employers were not even eligible for PPP loans. Tax credits that only provide relief for the payroll costs incurred by an employer do very little to help those employers who can’t keep the doors open while continuing to pay their employees. Failure to account for the fixed costs of operating a business will do nothing to ensure job security for workers in the long-term—as much as payroll-focused credits were necessary in the short-term.

      Byrnes: These piecemeal proposals only serve to complicate matters. Once again, we seem to be moving toward a system where the tax code is so complex that the very business owners we’re trying to help won’t be able to understand their options.

      ____

      Bloink: As businesses move toward reopening, we must take a more wholistic approach. This bill limits the credit availability to employers with fewer than 1,500 employees and with revenue that is less than $41.5 million annually—targeting relief at the business owners who need help the most, albeit with respect to different—and equally necessary—expenses.

      Byrnes: We need to focus on expanding the relief provisions that we already have. We are only recently getting solid guidance on provisions like the paycheck protection loan forgiveness option. Throwing another tax credit into the mix is not going to help matters when existing relief is already in such a confused state. Like so many other COVID-19 relief provisions, this credit is based on a fixed point—a 50% decline in revenues, year-over-year—and begins to phase out for lesser decreases. I can already imagine the complications that will be generated once questions over how to make the calculations begin rolling in to the IRS.

  • 0074. Capital Gains Tax Reduction

    • As negotiations over the next round of COVID-19 relief continue, some Republicans in Congress have called for cuts to the capital gains tax rates. Cuts to the capital gains rates would reduce the already lower tax rates that apply to a taxpayer’s profits when capital assets are sold. Currently, a 20%/15%/0% rate structure applies, with rates varying in accordance with a taxpayer’s annual income. The highest earners are also often subject to a 3.8% investment income tax on top of the otherwise applicable capital gains tax rate.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the possible impact of a capital gains tax cut in the next relief package.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: A capital gains tax cut would have an extremely positive impact on the current economic and business climate. Businesses at all levels are suffering from the impact of an unprecedented economic downturn. Many individual taxpayers are holding steady and extremely reluctant to make changes to their investment portfolios—and this includes investing in businesses that need those funds to recover and grow the economy.

      Bloink: Reducing capital gains tax rates right now would even further erode our tax revenues—which have been effectively gutted by the much-needed COVID-19 economic relief Congress has already provided to date. Importantly, even taxpayers who are fortunate enough to have significant investment holdings and the ability to move funds around are nervous. A simple tax cut might be incentive to sell, but it’s no guarantee as to what investors will choose to do with their money in this climate.

      ____

      Byrnes: Cutting rates right now would reassure investors and focus our attention where it needs to go—on creating jobs. Without this type of economic stimulus that’s focused on getting people back to work, the economy will continue to stagnate as consumer demand remains at historically low levels. Cutting tax rates is a proven path toward large-scale economic stimulus and if there’s ever been a time for these types of cuts, it’s now.

      Bloink: A reduction in capital gains tax rates is an outright giveaway to the wealthy in this country. Everyday Americans are not thinking about their investment portfolios and how to maximize those investments for future growth. Everyday Americans are struggling to put food on the table and are worried about their health or whether they will be able to keep the lights on in their business. This is not where our focus should be at this moment in time.

      ____

      Byrnes: Tax cuts for the wealthy and business owners are not always a simple handout to the wealthy. The American economy cannot reemerge if people don’t have jobs. It’s the businesses in this country that have the ability to provide those jobs—if they have the funds and tax support that they need to take a risk and continue growing their business. A capital gains tax cut would encourage investment, which is how business owners get what they need to rebuild.

      Bloink: A capital gains tax cut would provide a key benefit to the super rich. It’s more of an incentive to sell investments while tax rates are low than to continue investing in the economy. There are better ways to support business growth through directly helping the business owners who need help the most.

  • 0075. Unemployment Extension

    • The CARES Act greatly expanded federal unemployment assistance for employees who were laid off in the wake of the COVID-19 pandemic. This federal pandemic unemployment compensation provides employees with an additional $600 weekly federal unemployment benefit on top of the available state unemployment benefits. Pandemic unemployment assistance, or PUA, provides an additional 39 weeks of federal benefits for those who have exhausted their right to state benefits or who otherwise would not qualify for unemployment. However, the relief was temporary, and is set to expire in July. In light of the ongoing impact of COVID-19, lawmakers have proposed extending the federal unemployment assistance past July.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the proposals to extend federal unemployment assistance.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The July cutoff date was nothing more than an arbitrary guess at when the economy might begin to recover from the unprecedented, massive, nation-wide shutdown. Lawmakers really had no way to anticipate when the economy would begin to recover—or whether reopening the economy would get a reasonable number of people back to work. We are still living in unprecedented times and have to provide assistance to the employees who have been forced out of work due to something completely beyond any of our control.

      Byrnes: These expanded federal unemployment benefits might have been necessary in the short-term, but we have to admit that the law was enacted hastily. We needed to get relief to out-of-work Americans quickly and the CARES Act did just that. Now that we are beginning to emerge and reopen the economy, it’s time to reconsider the extensive and expansive nature of these benefits—which may very well encourage people to resist returning to work at all.

      ____

      Bloink: I’m all for tightening eligibility restrictions to make sure that only out-of-work employees with no other option receive the added federal assistance. However, we have to remember that even though states have started to reopen, there is no guarantee that further lockdowns won’t be needed. Virus cases are spiking at an alarming rate in many of the states that have moved to reopen—meaning that the massive explosion in unemployment numbers could continue on and off indefinitely.

      Byrnes: Looking back, the expanded unemployment benefits seem to be encouraging many to remain at home on the government’s dime despite their places of work reopening. The shutdown was unprecedented, and we responded in kind. But the shutdown is now over and it’s time to shift focus to getting the American economy back on track.

      ____

      Bloink: Now is not the time to cut off assistance to families who need it the most. We need to focus on flexible solutions because it seems unlikely that the economy is going to recover sufficiently any time soon. Lower income workers are depending upon federal assistance to keep a roof over their heads. For the vast majority of workers, this is not the paid vacation that many make it out to be.

      Byrnes: Back in 2009, when the economy was also stagnant, relief efforts were focused more on getting people back to work and that’s where we need to focus now. If we get relief to business owners who can create jobs and investors who can fuel the economy—whether in the form of direct payments or tax cuts—we get people back to work so that they are no longer forced to rely upon unemployment assistance.

  • 0076. Affordable Care Act (ACA) Expansion

    • Democrats in Congress have proposed expansions to existing Affordable Care Act (ACA) tax credits and subsidies in order to provide assistance to taxpayers struggling to afford the cost of insurance. In general, the availability of financial assistance in purchasing health insurance through the marketplaces is limited to taxpayers who earn no more than 400% of the federal poverty guidelines. These guidelines are based upon household size. The proposal would change the methodology to allow certain taxpayers to qualify for tax credits even if their income exceeds 400% of the poverty level. The proposal would also change the way “affordability” is tested when evaluating the taxpayer’s required contribution for employer-sponsored health insurance.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the proposal and this most recent effort to shore up the ACA.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Taxpayers need access to affordable, comprehensive health insurance coverage more than ever in the wake of COVID-19. Unemployment levels are at historic highs, meaning that many taxpayers are unable to even rely upon employer-sponsored healthcare while struggling with unemployment. Expanding access to existing ACA tax credits, subsidies and assistance is the smartest, most efficient way to provide help to struggling Americans at this point in time.

      Byrnes: The ACA is a proven failure. It’s a law that represents the broken promise that Americans would be able to obtain quality health insurance that is affordable. Most Americans have seen their deductibles soar while the price of obtaining coverage remains prohibitively high. The Supreme Court is currently considering whether to invalidate the entire law—and that’s the result we should aim for.

      ____

      Bloink: The current proposal is in line with reality. Changing the way affordability is measured to account for the more expensive—and equally common—family coverage conforms to the reality of what taxpayers are dealing with in terms of cost. We are not changing the basic premise that affordability should be based on a taxpayer contributing no more than 8.5% of household income to health insurance costs. Rather, we are simply reforming the law so that, in reality, taxpayers are not being required to contribute more than that amount.

      Byrnes: Shoring up the broken ACA is not the answer for anyone. We need to invalidate the entire law and start again with a law that is truly designed to protect the American people and provide the health coverage options that Americans want. Expanding financial help for taxpayers who don’t want or need the level of insurance mandated by the ACA is a step in the wrong direction.

      ____

      Bloink: It is not realistic to propose that now is the time to engage in comprehensive healthcare reform. We have a law that is working for most Americans. We need to expand it to make sure it works for all Americans. It took decades to reach consensus on the ACA—Americans don’t have that kind of time to wait for help. We can expand the current rules to create a system where health coverage is affordable for everyone. The alternative is to gut the system entirely and leave the most vulnerable Americans to fend for themselves.

      Byrnes: Expanding a broken law is not the way to help American families get through this pandemic. We need a shift toward providing jobs so that we can get Americans back to work. The timing might be inconvenient, but that is no excuse to funnel money into a dying law. We should still strive to enact a healthcare law that works for the country.

  • 0077. Families First Coronavirus Response Act (FFCRA) Summer Rules

    • The Families First Coronavirus Response Act (FFCRA) provides paid time off work to parents who cannot work because of childcare needs when the child’s usual place of care or school is closed or unavailable due to COVID-19. Now that schools are closed for summer, many have questioned their eligibility based on cancellations for summer camps, summer enrichment programs or other childcare alternatives. The DOL has clarified its original guidance to provide that an employee’s mere interest in a summer program that was cancelled is insufficient to establish FFCRA eligibility. If the child was already enrolled in a program or care option that was cancelled, the parent may be FFCRA eligible.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the DOL position.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

       

      Byrnes: The DOL had to strike a balance in this situation. Every summer, parents across the country grapple with childcare issues while schools are closed. While important, that is not a reason to universally give every parent the right to paid leave from work under the COVID-19 relief laws. Providing paid leave across the board would be untenable and create an impossible situation for businesses struggling to get back on their feet.

      Bloink: While I agree that this is a balancing act, we have to remember that we are still living in unprecedented times despite some degree normalcy returning. The entire spring presented a challenge to parents in the form of uncertainty—and businesses, including summer camps and enrichment programs, had to deal with the same uncertainty. In some cases, it may not have been possible for parents to plan sufficiently in advance to satisfy the criteria set forth by the DOL to date.

      ____

      Byrnes: It is extremely reasonable to require employees to demonstrate some concrete childcare plan that was thwarted by the virus in order to be eligible for paid summer leave. Allowing parents paid time off without some concrete evidence of a disrupted plan would open the door for every employee with children to come forward and request summer leave.

      Bloink: Requiring parents to specifically identify a program that was cancelled may simply be impossible in some cases where parents didn’t get that far in planning. Many parents did not, and often could not, take the concrete steps necessary to secure summer childcare. Businesses were closed and may not have been soliciting children because they did not know whether they would open for the summer. Many economies are only slowly crawling toward a reopening—and the massive spikes in virus cases in states that have reopened may make it impossible for parents to allow their children to participate even in the available programs.

      ____

      Byrnes: There has to be a line. The DOL has chosen a line that is reasonable and gives employers a concrete set of circumstances in which employees must be given paid time off during the summer to provide childcare. The only alternative I can see is to provide across-the-board relief to parents and that is simply not feasible. The DOL has confirmed that the current approach is a fact-intensive inquiry and there is no single approach to determining FFCRA eligibility—which should provide wiggle room for parents who might not have gotten far enough in their planning.

      Bloink: Of course, providing blanket paid time off work to parents for the summer would be unreasonable and unsustainable. To a certain extent, however, relief should be available for parents who find themselves in a bind right now even if they did not have a specific childcare program in mind a month or two ago.

  • 0078. IRS FAQ Reliance

    • The IRS and related agencies typically release interpretive guidance about new laws and regulations in the form of frequently asked questions, or FAQ. Often, those FAQ are periodically updated to reflect new lines of thinking. In other words, the IRS often changes position in FAQ without enacting a formal new set of regulations. Recently, suggestions that taxpayers should be entitled to rely upon IRS FAQ as formal guidance have been floated by taxpayer advocates, especially in situations where the IRS changes an earlier position.

      We asked two professors and authors ALM’s Tax Facts with opposing political viewpoints to share their opinions about proposals to give taxpayers the right to formally rely upon IRS FAQ when taking actions based on that guidance.

      Below is a summary of the debate that ensued between the two professors.

       

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

       

      Bloink: In recent months, we have seen a tremendous uptick in IRS, DOL and related agency guidance provided in the form of FAQ. While these are unprecedented times, IRS FAQ are frequently the only solid guidance that taxpayers have to rely upon. They provide the most clear, succinct summary of the IRS’ thought process when it comes to enforcing the law. Taxpayers should fully expect that they can rely upon this guidance in taking action without fear that those FAQ will later be changed and applied retroactively.

      Byrnes: Taxpayers should not be relying upon informal IRS guidance, including FAQs. Treating these documents as though they were legally enacted laws creates a confusing, informal patchwork of guidance for taxpayers to sift through. Laws and regulations are what people should look to when determining their actions. FAQ do not have the full weight of the law behind them and should not be used to inform taxpayers’ decision making.

      ____

      Bloink: Unfortunately, FAQ are sometimes the only guidance a taxpayer has available. When FAQ and IRS notices are the only guidance that taxpayers have, they should absolutely be able to rely upon them as authoritative. When the IRS decides to amend a set of FAQ, that amendment should be prospective in time only—and there should be a clear record of when the change is made. I do agree that the current system can be confusing, but this confusion primarily stems from a lack of a clear system for showing when the agency has changed its mind.

      Byrnes: Taxpayers should understand that IRS FAQ are not the law of the land. The law is the law of the land. Promulgating page after page of FAQ only exacerbates the problem, which is an overly complicated tax governance system that the average American cannot possibly understand.

      ____

      Bloink: If the IRS doesn’t intend to allow taxpayers to rely upon FAQ and similar informal guidance, that guidance should not be released. Unfortunately, it’s unworkable for the IRS to immediately release regulations interpreting the laws—especially when legislation is being signed into law as quickly as it has amidst the covid-19 pandemic. Taxpayers need to be confident that their actions won’t later be challenged, especially when they need to take action quickly to protect themselves.

      Byrnes: The IRS has every right to change their minds. That’s why regulations are proposed and go through a vigorous commend period. Taxpayers offer their opinions and suggestions with respect to a set of rules and the IRS often changes to adopt those suggestions and make the law more workable. There is no comment period with respect to FAQ. They are not set in stone, and they should not be set in stone for taxpayers to rely upon—because they often fail to fully reflect the big picture.

  • 0079. Safe Harbor Relief

    • As part of the sweeping relief provided to retirement plan sponsors in 2020, the IRS has provided relief for employers who sponsor safe harbor 401(k) plans. Safe harbor plans are useful to employers because they are deemed to pass certain nondiscrimination tests that qualified plans are required to satisfy. In order to qualify as a safe harbor plan, however, employers must provide for annual employer contributions for non-highly compensated employees, satisfy certain notice requirements and provide for immediate vesting. In response to the difficulties faced by many employers in 2020, the IRS has offered relief that allows plans to reduce or suspend matching or nonelective employer contributions if the amendment is made between March 13, 2020 and August 31, 2020.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the safe harbor relief.

      Below is a summary of the debate that ensued between the two professors.

       

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

       

      Byrnes: Small business owners need all the help they can get. This is what we call an “all hands on deck” situation. When these business owners are just trying to keep the lights on, they shouldn’t also be burdened with an immediate need to make safe harbor contributions to employees’ retirement plans. Let’s face it—many employers are struggling just to meet payroll even in light of the extensive government relief we’ve seen to date.

      Bloink: I know that business owners are struggling—and it might be true that small businesses are among those most likely to benefit from the use of safe harbor plans. However, jeopardizing the retirement security of rank and file employees is not the way to provide relief.

      ____

      Byrnes: This type of targeted relief is exactly what Democrats are always asking for. We’re trying to help the very small business owners who are struggling. These are the business owners who might not offer a retirement plan option if they had to satisfy the burdensome and expensive nondiscrimination testing requirements.

      Bloink: Frankly, this relief is not targeted. It’s available to any business owner who uses the safe harbor framework. The government has provided business owners with relief on countless fronts—and it’s anticipated that more relief is in the works. The entire point of the safe harbor 401(k) is to provide an avenue toward a more secure retirement for lower- and middle-class Americans. Relaxing those rules now is just kicking the can down the road—we’re going to have to deal with a woefully unprepared generation of retirees in the future.

      ____

      Byrnes: We’re talking about a temporary measure here. The IRS relief that allows suspension or reduction in employer contributions is only temporary. Mid-year amendments will have go to through proper channels in future years. Giving small business owners a break for a single year is not going to fundamentally jeopardize American retirement readiness.

      Bloink: Business owners who have chosen to rely on safe harbor status get to escape the more costly nondiscrimination testing requirements that traditional plans require. In exchange, they agree to help their rank-and-file employees with retirement savings—while highly compensated employees get to max out their contributions. This is a relief option that takes from the working class American to give to the business owner.

  • 0080. Telehealth Expansion

    • Basic healthcare needs were not spared the changes to come out of the COVID-19 pandemic. As the country struggled to adapt, state and federal government rules were expanded to promote the use of telehealth services. Telehealth services allow patients to receive healthcare advice without face-to-face meetings with a healthcare provider. Video conferencing instead facilitates the meeting between doctor and patient. Although flexibility has been stressed as critical during the pandemic, state licensing requirements could jeopardize the ongoing popularity of telehealth services. As states reopen for in-person encounters, Congress and states have expressed an interest in continuing to implement rules that would encourage the expansion of telehealth services even post-pandemic.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the continued expansion of telehealth services even as America reopens is wise.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Telehealth and other remote health options are an efficient and effective way to get health services to Americans who otherwise might have difficulty getting the advice they need. Not all Americans have the resources they need to visit a doctor in person—even with the failed Obamacare coverage that’s available to unemployed taxpayers through the insurance marketplaces. Telehealth fills the gaps to keep America safe.

      Bloink: Telehealth might be a cost-effective solution in the short-term—and I do agree that it’s served its purpose well in the midst of a global pandemic. In the long-term, we really can’t predict whether this type of remote health care is effective enough to keep America healthy. “Filling the gaps” is one thing, providing a replacement for traditional medical care is another.

      ____

      Byrnes: We finally have the technology in place to make cost-effective telehealth work for nearly every American. Very few Americans lack access to at least a basic smartphone with video capabilities. There’s no reason why Americans shouldn’t benefit from the cost savings that telehealth offers—and I’m in favor of encouraging remote care as a solution at every turn, including via reimbursement from tax-friendly savings accounts like HRAs.

      Bloink: Some Americans might be drawn to telehealth because it’s convenient and cheap. But are doctors able to offer the same level of care? If telehealth makes America sicker in the long run and even discourages Americans from visiting their doctors in person, it isn’t a cheaper alternative to traditional healthcare. Nor is it viable in the long term.

      ____

      Byrnes: Democrats are always trying to tell hardworking Americans what quality healthcare should look like. Americans should really have the right to choose what they prefer. If they want to use their tax-preferred funds for telehealth and skip the doctor’s office, they should have that right. After all, it’s their money and why should the government have the right to dictate healthcare preferences?

      Bloink: Remote services might have played a critical role in getting Americans access to healthcare advice during the pandemic. Now, our focus should be on finding solutions to allow people to return safely to the doctor’s office for their care. Virtual advice is no substitution for an in-person consultation with a doctor—a doctor who would likely be inclined to address only discrete issues via telehealth, and might miss bigger picture health issues that preventative care is designed to address. The government has every right to weigh in—because healthcare is something we’ll all need at some point and the financial burden cannot be imposed solely on those who take their health seriously.

  • 0081. Unemployment Reduction

    • As members of Congress begin to negotiate the next round of stimulus relief, one of the many points of disagreement between Republicans and Democrats involves whether to extend the generous federal unemployment assistance provided in response to COVID-19. Federal rules that expired at the end of July provided unemployed taxpayers with a supplemental $600 weekly unemployment benefit payment (in addition to state-level benefits). The most recent stimulus package introduced by Republicans in Congress would reduce that benefit to $200 per week—and some would rather eliminate the supplement entirely. Democrats, on the other hand, have proposed extending the $600 weekly supplement until a state reaches a 6% unemployment rate.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the federal unemployment reduction.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: We’ve reached a point in our response to the pandemic where it’s time to encourage a return to work. The $600 federal supplement made sense during a time when businesses were shut down and we were encouraging all Americans to stay home as much as possible. That point has passed, and it’s time to begin directing federal dollars toward return-to-work incentives.

      Bloink: The reason we simply added $600 to all unemployment benefits was simplicity. Return-to-work incentives have their place, but Americans continue to struggle as unemployment remains at record-high levels. A return-to-work benefit does very little to help when there’s no work to return to. We also have to remember that some states struggled in implementing this across-the-board supplemental benefit. Asking them to switch over to a new system is not a viable option while a record number of Americans remain out of work.

      ____

      Byrnes: The extra $600 in weekly benefits provided a perverse situation where many Americans were making more staying at home than they earned while fully employed. This is the exact opposite of what we want to happen right now. We need to give Americans an incentive to return to the workplace, not support a financial gain for those who choose to stay home. One solution might be to calculate the unemployment benefit on a case-by-case basis, based upon the employee’s average pay prior to being laid off.

      Bloink: Dramatically reducing the federal benefit means two things: workers will stop receiving benefits as state agencies struggle to implement procedures for complex new rules and millions more Americans will be unable to pay their bills (even with the added $200 weekly benefit in many cases). We simply cannot expect state-level unemployment agencies to quickly and effectively implement an individualized benefit calculation rule. We saw what happened in March and April—some of these agencies were unable to quickly cope with the across-the-board increases.

      ____

      Byrnes: We’ve reached a point where we have to focus on providing more targeted relief when it comes to unemployment benefits. I agree that Americans are still struggling to make ends meet. But we have to eliminate the “stay at home” incentive. There are smarter ways to provide hardworking Americans with the relief they need.

      Bloink: The economy cannot recover if Americans are unable to sustain even their basic cost of living needs. The jobs that existed prior to the pandemic simply have not returned—and we don’t know when they will, as the pandemic continues to rage across much of the country. Business owners who are able to reopen are operating at reduced capacity. Many have no choice but to bring back only a shell workforce. Take the hospitality industry—many people are choosing to stay home rather than dine out even as restaurants reopen. Bringing hospitality staff back to work without the financial benefits they received prior to the pandemic is also untenable.

  • 0082. Work Availability Rule

    • The Families First Coronavirus Response Act (FFCRA) provided relief to workers in the form of paid time off for certain coronavirus-related reasons. Employers, on the other hand, are entitled to a fully refundable tax credit for amounts paid under the FFCRA. To qualify for paid leave, the employee must experience one of several enumerated situations—such as being diagnosed with COVID-19, missing work to care for someone diagnosed with COVID-19 or providing childcare in situations where COVID-19 rendered otherwise available childcare unavailable.

      The DOL interpretation of this law, however, would have only required the employer to provide paid leave if the employer otherwise had work for the employee to do (whether from home or onsite). A New York court vacated this “work availability” rule and several other DOL interpretations of the law.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the federal court ruling.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The FFCRA is only supposed to give employees paid time off when they’re struggling with one of six enumerated COVID-19 issues. The DOL overstepped their authority on this one by interpreting the letter of the law to also bring the “work availability” issue into the mix. Whether the employer has work available is irrelevant—and the fact that the employer is receiving a fully refundable tax credit for every dollar in wages paid supports that conclusion.

      Byrnes: The law doesn’t give employees a blanket guarantee that their jobs will be safe and they’ll continue to receive pay if they suffer a COVID-19 hardship. The work availability requirement was completely logical—in no way has Congress taken steps to guarantee that all employees of struggling employers will continue to receive wages if they have to take time off to care for kids or become sick themselves.

      ____

      Bloink: We’re talking about employees who have not been fired or laid off or even furloughed. The work availability requirement essentially gave employers the right to tell employees they had nothing for them to do and avoid paying FFCRA wages when their employees suffered a hardship. I understand that the new rules are complex and were enacted quickly, giving employers little to no time to prepare to implement them. But we’ve all had to adjust.

      Byrnes: So many employers still have their doors closed—or are on a roller coaster ride of being able to reopen, then are forced to close and reopen yet again. These employers don’t have the money around to keep paying employees who have to take time off because of COVID-19.

      ____

      Bloink: That’s exactly why the law gives the employer the fully refundable tax credit. Conditioning availability of paid leave under the FFCRA on work availability gives employers a carte-blanche excuse to get rid of employees who take advantage of the leave provisions. The entire point of the law was to prevent this.

      Byrnes: If the employer has nothing for the employee to do at any given point in time, they shouldn’t be required to keep paying wages for any reason. That’s hurting the employer—and anything that hinders employers’ abilities to bring available people back to work is hurting employees and the entire U.S. economy.

  • 0083. Payroll Tax Deferral

    • In an ongoing effort to provide relief to working class Americans, President Trump has released an executive order that would allow workers to defer the employee portion of the payroll tax. The payroll tax is a two-part tax that is usually split between the employer and employee. The order only deals with the employee 6.2% portion of the tax (employers are generally eligible to defer their payroll tax obligations or retain their tax payments under provisions enacted earlier this year). The deferral allows workers who earn less than about $104,000 per year to defer payment of the tax.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the payroll tax deferral order.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: This deferral helps struggling workers who need money now. Other methods of providing relief—expanding credits, cutting taxes, etc.—are all great stimulus measures. Unfortunately, they don’t usually provide the immediate relief that workers need to get by in these unprecedented times. Americans can’t afford to wait until they file their tax returns next year. The 6.2% payroll tax deferral provides an immediate tax cut for lower and middle-class workers who need help the most.

      Bloink: Millions of workers are unemployed right now, first of all. That means they aren’t on an employer’s payroll and so have no payroll tax obligations to defer. The payroll tax deferral is misguided—it focuses assistance on those who actually have kept their jobs and tend to need help less than the millions of unemployed Americans. It’s those taxpayers who are now struggling to get by on significantly reduced unemployment benefits that don’t provide the help most people need just to pay bills.

      ____

      Byrnes: We need to provide relief on all fronts. There isn’t a group of middle-class Americans that is somehow immune to the havoc this pandemic has wreaked on all facets of our daily lives. Payroll tax deferral is one simple, easy-to-administer form of assistance that actually takes very little to implement.

      Bloink: Actually, this deferral would force everyday Americans to figure out how to pay back this “deferral” down the line. In other words, it only kicks the can down the road, saving the financial crisis for after the deferral period is over. Of course, it’s possible that Congress could forgive the payroll tax entirely for 2020—but that creates the administrative headache of refunding those Americans who chose to continue paying their tax liability.

      ____

      Byrnes: Congress has failed to act. Americans need financial relief now and if Congress can’t get another stimulus check into their hands to help small businesses, it’s hard to see how our economy will begin to recover. Payroll tax relief is a measure that has been effective historically and will work today. It’s a valuable interest-free loan (worst case) and a forgiven loan for ordinary Americans if Congress chooses to act (best case scenario).

      Bloink: We should really be looking at this payroll tax deferral as a 6.2% tax hike down the road. You can’t expect small business owners to become collection agents and try to recoup these amounts at a later date. The administrative nightmare this creates hasn’t been fully considered by anyone in support of the provision—which in itself was ordered in a hasty, questionable way that makes me wonder whether the president even has the authority to unilaterally implement a deferral provision like the one at hand.

  • 0084. Lifetime Income Disclosure Rule

    • The DOL has released an interim final rule that requires 401(k) plans and other ERISA-covered defined contribution plans to provide certain lifetime income disclosures. The disclosure rules were actually created by the SECURE Act, which directed the DOL to release an implementing rule during 2020. Under the interim rule, plans must disclose the estimated monthly payment the plan participant could hypothetically receive based upon their account balance and life expectancy, assuming that payments begin at age 67. The rule also provides information about actuarial assumptions, interest rates and life expectancy tables that will be used to determine the projections. The rule also provides that an estimate must be given for qualified joint and survivor annuities, assuming the participant is married to someone and that the spouses are the same age.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the DOL interim final rule.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: The DOL rule gives retirement plan participants the information they need to make smart and informed decisions about their retirement savings and whether they’re ready to retire. Too often, people contribute blindly to a 401(k) without any real idea of the actual income stream that they’re building for themselves—and whether that income will be sufficient to live on during retirement. The DOL rule raises the awareness that people planning for retirement need.

      Bloink: The DOL interim rule actually isn’t particularly helpful for anyone. It doesn’t go nearly far enough in providing the kinds of detailed and personalized information that plan participants need to see to encourage savings. All it does is require plan participants—whether they’re 20 or 60—what their account balance would generate on a monthly basis at age 67, given today’s interest rates and today’s account information. What about future values?

      ____

      Byrnes: We’re looking to motivate savings here. We need to train people to think of 401(k)s and other retirement accounts as an income stream, not a simple lump sum asset. After all, 401(k)s are designed to replace monthly pension payouts. Most participants have no idea how they’ll actually use these accounts—they might contribute on a regular basis, but have no idea what their actual decumulation plan will be.

      Bloink: The rule could be much more robust. Sure, it’s useful for participants to know how much they could receive on a monthly basis at age 67 based on their current account value. It would be even more useful for plan participants to have a target account value at retirement and information about how much income that target account value would generate?

      ____

      Byrnes: When plan participants see the actual monthly dollar amount that their current account balance can generate, they’ll be much more likely to increase their savings. The aim will be to reach a projection rate that more accurately reflects their standard of living and expectations in retirement. This rule provides a reasonable set of assumptions and explanations that participants can use as they see fit.

      Bloink: If we want to encourage savings, we need to give current plan participants a goal. A much more useful disclosure regime would give participants an idea of what their projected account value should be in order to achieve a certain standard of living at a future retirement date. We have to consider that 20-year-old participants need different information than 60 year old plan participants—what’s useful for one may have very little bearing on the other’s future reality. There’s still room for change, and I think we should take the opportunity to reform the rule to be as useful as possible for as many taxpayers as possible.

  • 0085. Trump Wage Assistance Program

    • After the CARES Act $600 weekly federal unemployment supplement expired, President Trump authorized creation of a new Lost Wage Assistance program. Designed to partially replace the $600 benefit, the new program provides either $300 or $400 per week to those receiving unemployment benefits of at least $100 per week under state law. The federal component of the supplement is $300, with the remaining $100 to be provided through state unemployment insurance funding. The $300 federal benefit is set to come from FEMA disaster relief funds. States can also opt to count amounts that a recipient is receiving under current law toward the 25% state match—meaning a supplement of $300 would be provided in addition to the $100 that the taxpayer must receive to qualify for the add-on benefit initially.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about Trump’s Lost Wage Assistance (LWA) program.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Even though the job market is starting to rebound, millions of Americans remain out of work through no fault of their own. Now that the extra $600 weekly benefit has expired, we need to explore options to help Americans who continue to struggle with finding work in this challenging market. An added benefit like this is a great way to help Americans make ends meet while we work to improve economic conditions and the job market as a whole.

      Bloink: I agree that we have to find a way to help the millions of unemployed Americans out there, but I don’t think this particular structure will accomplish that goal. The program creates unreasonable and unworkable complications, leaving states holding the ball in administering a complex program that seems designed to fail.

      ____

      Byrnes: A program like this is a delicate balancing act. We want to help Americans pay their bills and prevent an even more dramatic economic downturn spurred by the trickle-up effect of loan defaults and economic stagnation. We also want to make sure that we aren’t encouraging Americans to simply remain at home so that they can collect a large federal benefit—in many cases, larger than their actual paycheck. The $600 benefit was much too high to achieve this goal, as we saw when many workers simply refused to return to work.

      Bloink: The self-certification provisions in the law are much too complex for many states to handle. Remember the problems states encountered when even trying to administer a simple, across-the-board supplemental federal benefit? The system doesn’t have to be this complicated and it shouldn’t have to be—especially now that states have worked through their issues with implementing the initial federal benefit program.

      ____

      Byrnes: Procedural hurdles shouldn’t stand in the way of creating a system that works at all levels. Sure, the program might be complex to administer initially. In the long run, it’s well-designed to work. The $600 benefit level was unsustainable, and everyone knew it from the start. Even the federal government has limits. This reduced supplement helps Americans, is workable and requires states to share in the responsibility.

      Bloink: If the $600 benefit was too high, there are other compromises available. Congress should act to implement some version of the CARES Act program that’s already been put into place by state unemployment authorities. Even if the federal add-on benefit is less than $600, there’s no need to reinvent the wheel by implementing a program that’s full of new challenges and complexities—and this one certainly is. The last thing Americans need is another round of benefits that are delayed for months on end while states figure out how to administer a new program.

  • 0086. IRS on Payroll Tax Deferral

    • Beginning September 1, 2020, employers have the option of deferring the employee portion of the payroll tax through December 31, 2020. Employers can choose to stop withholding the 6.2% employee portion of the Social Security tax for employees who earn less than $4,000 bi-weekly (or the equivalent for the employee’s actual pay period). IRS guidance clarifies that the deferred employee payroll taxes must be repaid during the period beginning January 1, 2021 and ending April 30, 2021. Taxes that are not repaid during that period will accrue interest and penalties. Employers can pass those amounts on to employees who have not repaid their deferral amounts and are permitted to enter into arrangements with employees to assure repayment.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the recent IRS guidance interpreting the payroll tax holiday.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: This guidance provides much-needed clarification so that employers can begin implementing the payroll tax holiday. Every American is struggling in some way right now and allowing the employee portion of the payroll tax is only fair—after all, employers are already eligible for tax credits that essentially offset the employer portion of the payroll tax under the CARES Act. Employees should have the same benefit of an income boost in these difficult times.

      Bloink: I’d be interested to see statistics on how many employers even try to implement this completely unworkable plan. Maybe a payroll tax holiday is a good thing in theory, but this isn’t a true holiday—and the IRS guidance creates more questions than it answers. A temporary tax cut today that leads to a huge tax hike come January isn’t going to help anyone.

      ____

      Byrnes: Educating employees is going to be key to making this program successful, and the IRS guidance can help employers in that endeavor. We needed a way to provide immediate relief to struggling employees. Americans shouldn’t have to wait around for yet another round of Congressional negotiations that seem to be leading nowhere as the election looms before us.

      Bloink: The IRS guidance places sole responsibility on remitting deferred amounts on employers. That means employers will have to double employees’ payroll taxes in just a few short months. The guidance provides no information on how employers are supposed to respond to changing circumstances and employee turnover. What if the employee is no longer employed with the employer? What if the employee doesn’t have the money to reimburse the employer after leaving the job?

      ____

      Byrnes: These are all questions that we have months to answer. What we needed was immediate action and that’s what we have in front of us—a clear path forward toward implementing an immediate tax cut for American workers. The politicians weren’t willing to budge in order to offer financial relief, so the president had no choice but to act.

      Bloink: What we need is real relief—not a system that provides short-term relief in order to boost the president’s reelection chances. This payroll tax holiday only kicks the can down the road, when another party might be in charge of the White House and the current administration may be able to avoid responsibility for the mess it’s created. Employees who might be preparing for a tax cut need to prepare for the reality of a tax hike in the near future.

  • 0087. Biden's Social Security Tax Expansion

    • In the wake of the payroll tax holiday blessed by the Trump administration, Democratic presidential candidate Joe Biden has proposed his own Social Security tax plan. Under current law, all taxpayers only pay the Social Security tax on their first $137,000 worth of income. Biden’s plan would keep that rule, but would reinstate the payroll tax on income in excess of $400,000. In other words, only income between the annual earnings cap and $400,000 would be exempt from the Social Security tax.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about this potential new rule and its impact.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Right now, Trump has blessed a payroll tax holiday that has the potential to severely diminish—if not gut—the Social Security reserves. Countless Americans rely upon Social Security today and with waves of baby boomers retiring every day, countless more will be counting on Social Security to shore up their retirement savings—if not provide a primary source of income. We need to find a way to keep the system solvent without cutting benefits. Biden’s plan ensures that the wealthy pay their fair share without punishing ordinary middle-class Americans.

      Byrnes: Biden’s plan to exempt income between $137,000 and $400,000 from the payroll tax, while forcing the highest earnings to shoulder even more of the burden, is completely arbitrary. The Social Security tax isn’t a general revenue tax. It’s directly tied to taxpayer’s eventual receipts from the system. It makes no sense to require higher income taxpayers to pay more without a corresponding benefit.

      ____

      Bloink: The Social Security trust could run dry in just a few short years. We need to take some type of action now to avoid much more drastic action down the line. Allowing the system to fail isn’t a realistic option. We’re going to have to take reasonable action today or see extremely steep tax hikes or benefit reductions for a particularly vulnerable class of Americans in the near future.

      Byrnes: If we want to increase Social Security taxes on higher income Americans, we also need to change the fundamental system itself. Democrats love to say that Social Security is an entitlement system. You get back income based on what you pay in. Well, if we’re going to force a group of taxpayers to pay more into the system, they should fairly be entitled to get more out of it.

      ____

      Bloink: Americans who earn more than $400,000 per year are the least likely to be reliant on Social Security as a source of income in retirement. It’s not feasible for this nation as a whole to allow millions of retirees to slip into poverty because the rich aren’t willing to pay their fair share. Allowing that type of result would be catastrophic to everyone—including the wealthy who oppose this tax. I do think there might be better ways to go about this—considering that the top earners are also the most able to manipulate their on-paper income—but this plan is a good start.

      Byrnes: Biden’s plan fundamentally changes the Social Security system into a welfare fund for lower earning Americans. That’s just not what the system is set up to do. I agree that we need to do something to shore up Social Security for future generations. I don’t believe that requiring a certain group of Americans to shoulder the burden is the right way to go about it.

  • 0088. Biden's Qualified Business Income (QBI) Plan

    • Democratic presidential candidate Joe Biden’s tax plan includes a proposal that would modify the current deduction for qualified business income (QBI) available to pass-through entities. Under current law, business owners are permitted to deduct 20% of QBI if their earnings fall below certain threshold limits (in 2020, $163,300 for single filers and $326,600 for joint returns). Once income exceeds these limits, complex rules determine the amount of the business owner’s permitted deduction. Biden’s plan would phase the QBI deduction out entirely for higher income taxpayers, beginning at $400,000 annual income. For taxpayers below the $400,000 line, the deduction would remain as it currently stands.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about Biden’s plan to modify the Section 199A QBI deduction.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Biden’s plan is exactly what Section 199A needs to make the QBI deduction workable for small business owners. From the outset, Section 199A was a complex mess of rules and exceptions, all of which were subject to interpretation and most of which were difficult for the average business owner to decipher. This would provide a bright-line rule for higher income business owners.

      Byrnes: This plan is a hidden tax hike on small business owners. Those who earn above the $400,000 annual threshold will lose the benefit of this valuable deduction and have a perverse incentive to switch to a corporate form, where they can take advantage of lower rates.

      ____

      Bloink: The current maze of complex phaseout rules begins to apply for business owners who earn as little as around $160,000 per year. Even the most experienced of tax professionals have had a difficult time interpreting the guidance we’ve received on how to calculate the QBI deduction phaseout. Many of these small business owners don’t have the resources needed to effectively plan for the deduction. In this time of uncertainty, giving small business owners peace of mind so that they can plan for their tax liability is more important than ever.

      Byrnes: The complex rules involved in calculating business owners’ QBI deduction were put into place for specific reasons. Business owners who have employees and pay wages should be encouraged to keep doing that. Similarly, those who invest in property and growing their business should be encouraged to do so. The phase out rules may be complex, but they’re purposeful. Biden’s only purpose is raising revenue.

      ____

      Bloink: Revenue that this country sorely needs. We have to face facts. The dramatic aid packages that have been put into place this year were absolutely necessary—but they’re also extremely costly. We’re going to have to find ways to increase revenue streams to make up for some of that. Aren’t GOP leaders always complaining about the national debt? Biden’s plan is expected to raise something like $200 billion, most of which before the deduction is set to expire in 2026. The country needs this simplicity and the country frankly needs the revenue.

      Byrnes: This hidden tax hike and blanket $400,000 threshold would punish many business owners for paying wages at a time when we need to encourage job growth the most. The current rules consider a number of factors, including qualified W-2 wage payments, in determining a business owner’s QBI deduction. Those who pay wages generally qualify for a larger deduction. Why should more successful business owners suffer because they’re doing their part to facilitate job growth and help the economy?

  • 0089. State-Level Wealth Tax Plans

    • State and local governments are facing unprecedented revenue shortfalls in the wake of the COVID-19 pandemic. Like the federal government, states have grappled with sky-high unemployment and widespread business closures in the past months. In response, states like New Jersey and California have proposed variations on a “wealth tax” to help with the shortfall. New Jersey, for example, would increase the state income tax rate on income over $1 million by nearly 2%. Conversely, families who make under $150,000 per year would be eligible for a $500 rebate. California would increase the top state income tax rate from 13.3% to 16.8% and impose a 0.04% tax on all net worth over $30 million.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether imposing a wealth tax at the state level is advisable.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: These wealth taxes shouldn’t be a surprise to anyone. At both the state and federal levels, government spending has skyrocketed while tax revenue has fallen dramatically. The money to keep the doors open has to come from someplace—and the middle class is already struggling enough. States like New Jersey and California are stepping in to take action where the federal government has been unwilling to act.

      Byrnes: All these taxes will do is encourage wealthy taxpayers in high tax states to move. Wealth taxes like these punish those who have worked hard and experienced success even in challenging economic conditions. Imposing yet another tax on this group will have a negative impact on everyone, even the middle-class taxpayers these taxes are designed to help.

      ____

      Bloink: The wealthy are the least likely to pay their fair share in taxes. Those with astronomical wealth are the most able to manipulate income to avoid paying any income taxes at all. Even when their income is taxed, it’s at a rate that’s only a few percentage points higher than those applicable to average hardworking Americans who are struggling to make ends meet. A wealth tax like this is a step in the right direction toward making sure the wealthy are required to pay their fair share.

      Byrnes: Successful taxpayers already pay taxes at the highest rates in the country, both with respect to income taxes and capital gains taxes. They’re punished for selling assets they’ve worked hard to acquire—a type of double taxation when you figure that the income used to buy those assets was already taxed. Imposing yet another tax on this group is patently unfair when the entire nation—even the wealthy—continues to struggle with an unprecedented pandemic.

      ____

      Bloink: The New Jersey plan to raise taxes on income in excess of $1 million would raise a tremendous amount of revenue at a time when it’s sorely needed. California’s plan would go even further, taxing accumulated wealth. States aren’t trying to punish the wealthy. They’re trying to help taxpayers who can’t pay their bills and put food on the table through no fault of their own. They’re trying to keep government services operating. The wealthy have to be held accountable for paying their fair share.

      Byrnes: We’re talking about the Americans who are most likely to own a business and invest in the economy. These are the taxpayers who are going to create jobs and get America back on track again. Punishing them now won’t help anyone—especially not the residents of those states, who will see jobs and business move to lower tax states in response to these socialist tax plans.

  • 0090. Biden's Corporate Alternative Minimum Tax (AMT) Plan

    • Democratic presidential nominee Joe Biden has released a series of tax proposals in recent weeks. One of those proposals would create a new corporate alternative minimum tax (AMT) based on the “book income” of corporations. The tax would apply a minimum 15% rate on the income reported on corporate financial statements—also known as book income—for corporations with at least $100 million in book income. Generally, taxable income varies from book income because of the deductions, credits and tax preferences available to corporations and other entities when calculating taxable income. Book income is generally income as presented to investors and financial authorities. Calculating this income is subject to its own set of accounting rules. Biden’s proposed tax would replace the corporate AMT, which was eliminated by the 2017 tax reform legislation.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the new corporate AMT proposal.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Let’s start with the bottom line—big corporations are not paying their fair share. They’re able to manipulate taxable income in any number of ways to avoid paying the taxes this country needs to get back on its feet and escape our growing deficit. The 2017 tax reform legislation only magnified this impact by eliminating the corporate AMT and slashing corporate tax rates. It’s time we did something to hold these corporations accountable—especially in the wake of one of the largest across-the-board corporate bailouts in history.

      Byrnes: There’s nothing wrong with using available deductions, credits and tax rules to minimize taxable income. That’s why Congress passes these laws. They want to encourage businesses to grow and create jobs to help our economy. This law would unfairly punish corporations for using the law itself to legally create greater liquidity for business to grow.

      ____

      Bloink: Corporations have an incentive to make book income that’s reported on financial statements as high as possible, so that shareholders think they’re doing a good job. We can only guess at the internal revenue manipulations corporate executives use to arrive at higher book income levels. On the flip side, they don’t want to be taxed on these amounts. This system is patently unfair—big business can’t have it both ways. Biden’s plan would even the score.

      Byrnes: To punish corporations for using the law as it’s designed is what’s unfair. The tax code allows business owners to reduce taxable income in order to increase liquidity. We all know that small businesses are suffering. Acting now to punish them for their success should be considered out of the question.

      ____

      Bloink: The new law would only apply to the largest of corporations—those with over $100 million in book income. It has nothing to do with small business. Imposing an AMT on the amount of income that big businesses actually earn is a key way to hold them accountable for their fair share. The tax loopholes have to stop and this proposal goes a long way toward closing the corporate loopholes.

      Byrnes: For me, the bottom line is that book income is a number that’s totally unrelated to the tax code. This law would add a level of complexity that we don’t need in our tax code. This law would give business owners perverse and conflicting incentives that run contrary to the basics of running a business efficiently in these challenging times. We need to give business owners all the help that we can so that they can get back on their feet.

  • 0091. Biden's Itemized Deduction Plan

    • Democratic presidential nominee Joe Biden has released an outline of his tax plan should he win the 2020 election. Part of that plan involves significant changes to the tax rules governing itemized deductions for higher-income taxpayers. Biden’s plan would generally cap the value of itemized deductions at 28%, even for taxpayers in higher income tax brackets. Because Biden’s plan also includes reinstating the 39.6% income tax bracket for the highest earners, the cap would impact taxpayers in the 32%, 35%, 37% and 39.6% income tax brackets. For example, if a taxpayer had $30,000 in itemized deductions, the deduction amount would be capped at 28% even if the taxpayer fell in the 37% income tax bracket.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about Biden’s proposed cap on itemized deductions.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Let’s face it—taxes are going to have to increase somewhere. Tax revenues are down dramatically given the across-the-board relief provided in the wake of Covid-19. Imposing a 28% cap on the value of itemized deductions would impact only the highest earning taxpayers who remain able to take advantage of itemized deductions after the 2017 tax reform legislation significantly curtailed their value. It’s a smart plan that avoids a tax hike for middle class America.

      Byrnes: This plan would do nothing but punish successful Americans for being generous in supporting our charities. Charitable foundations need money more than ever right now. We should be taking steps to encourage charitable giving by increasing the tax incentives for making charitable donations. Biden’s plan would impose a penalty on taxpayers who give to charity—which is the exact opposite of what we want.

      ____

      Bloink: Capping the value of itemized deductions doesn’t penalize anyone. It’s a way to make sure the super-rich aren’t able to use itemized deductions to avoid paying their fair share in income taxes. 90% of Americans get zero benefit from itemized deductions because of the way the 2017 tax reform package was structured. Almost every middle-class American now uses the standard deduction. Itemized deductions provide a benefit for the rich and it makes complete sense to limit the value of that benefit given our current economic situation.

      Byrnes: The math is simple. A taxpayer in the 33% tax bracket who earns $10,000 and donates the entire amount to charity would only be entitled to a deduction valued at $2,800—but would owe $3,300 in taxes. That means it would actually cost the taxpayer $500 to make the donation. The itemized deduction cap would discourage giving by Americans who are most able to help others in need.

      ____

      Bloink: This plan doesn’t raise taxes. Wealthy Americans are able to manipulate their finances to gain the significant tax benefits of itemizing. They’re the taxpayers with the most expensive homes in expensive neighborhoods. That means it’s more likely that they’ll have substantial state and local tax liability, as well as mortgage interest, to get them over the standard deduction hurdle so that itemizing makes sense. Once they gain the benefit of itemizing, they can make substantial donations to pet projects and reduce their tax liability to almost nothing. This type of strategizing isn’t available to ordinary taxpayers. It’s a loophole for the rich that we need to work on closing and Biden’s plan does just that.

      Byrnes: We need to think about who we’re really hurting by a proposal like this. If higher income taxpayers are penalized for giving to charity, we’re hurting Americans who rely on charities for help. It’s a poorly thought out plan that will never become law even if Democrats do win control in November.

  • 0092. Biden's Corporate Tax Cut Plan

    • Former Vice President Joe Biden has proposed a tax plan that would focus on rolling back tax cuts for corporations. Biden’s plan would increase the corporate income tax from 21% to 28% (it was reduced from a maximum 35% to 21% by the 2017 tax reform legislation). Biden would also create a minimum tax for corporations with at least $100 million in book income and roll back many of the tax preferences made available to corporations under the 2017 tax reform law.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about Biden’s plan to raise corporate income taxes.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Big corporations got a major windfall in the 2017 tax reform package. Many also just received a taxpayer-funded government bailout in response to the Covid-19 pandemic. Many of these corporations seem to have wasted these breaks, failing to hire and expand as Republicans who supported the tax changes had promised. It’s now time to look to the future and evaluate what the country as a whole really needs.

      Byrnes: Raising corporate income taxes would have one primary effect—it would motivate both the large and small corporations that support our economy to move their operations overseas. The fact is, corporations simply could not compete in the pre-2018 corporate tax environment. The high corporate taxes consistently motivated companies to look for ways to minimize their U.S. ties and U.S. tax liability. A proposal like this won’t raise the substantial revenue that’s being promised—it’ll instead drive that revenue overseas.

      ____

      Bloink: We have to focus on funding the types of programs that are going to get America back on its feet. That means we focus on ordinary, hardworking Americans who have been struggling for months in the face of an unprecedented economic downturn. The stock market might be strong—but where are the jobs we were promised when we bailed out big businesses with loan forgiveness earlier this year?

      Byrnes: Do we want to see valuable jobs lost to our foreign competitors? Do we want to see companies flee to tax-friendly jurisdictions? Businesses are only beginning to rebound from a downturn that no one could have foreseen. We need those businesses to stay here to generate jobs and help our economy regain strength—which isn’t something that can happen overnight, especially given the current realities.

      ____

      Bloink: We need to focus less on what big businesses need and more on what Americans need. We can use the added revenue from an increased corporate income tax to fund infrastructure projects, work on student loan forgiveness and make sure every American has access to quality, affordable healthcare. When we focus on those priorities, we will generate jobs, we will generate economic growth and we’ll help hardworking people get back on their feet.

      Byrnes: Raising corporate income taxes punishes the businesses we should be supporting. How are companies supposed to grow when they’re over-taxed as it is? Businesses are struggling just like American individuals are right now—we need to focus our attention on encouraging job growth and economic rebuilding. That’s what will work to get the country back on track.

       

  • 0093. Biden's Section 1031 Plan

    • Former Vice President Joe Biden’s tax plan includes a provision that would eliminate IRC Section 1031 exchange treatment completely for taxpayers with income that exceeds a $400,000 annual threshold. The 2017 tax reform legislation substantially limited the tax-free exchange treatment permitted under Section 1031 by limiting 1031 exchanges to exchanges of real property. Still, real estate investors remain able to defer their capital gains indefinitely as long as they continue to exchange real estate for real estate within the applicable Section 1031 time limits. Joe Biden’s plan would go further than the 2017 legislation by eliminating Section 1031 treatment even for real estate exchanges.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the proposed repeal of IRC Section 1031.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The 2017 tax reform legislation left the tax-free 1031 exchange treatment for real estate exchanges intact as a giveaway to Donald Trump and his wealthy real estate developer friends. Permitting tax-free exchange treatment for real property rarely benefits the hardworking American—who can instead rely on the Section 121 exemption to avoid capital gains tax treatment upon sale of a home. It’s time to stop the giveaways for the super-rich and make sure they’re paying their fair share.

      Byrnes: The Section 1031 exchange exception for tax-free exchanges of real property is key to helping businesses grow. For many small business owners, real estate is their most valuable asset. They can’t afford a huge tax hit if they decide to relocate or purchase a larger business space. Joe Biden’s plan to eliminate Section 1031 treatment entirely would punish the very people he’s purporting to help.

      ____

      Bloink: Biden’s plan carves out an exception for taxpayers making less than $400,000 per year. Owners of true small businesses can continue to benefit from Section 1031 treatment under this plan. It only requires that wealthy taxpayers who use Section 1031 as a tax shelter pay their fair share. The revenue generated by eliminating this windfall to real estate developers can be used to finance infrastructure projects and fund programs that help the elderly and those who are struggling to make ends meet through the Covid-19 pandemic.

      Byrnes: Requiring business owners to report and pay taxes every time they expand and purchase new real property penalizes businesses for being successful. These are the taxpayers who are going to provide job growth to help struggling Americans. We can’t keep allowing hardworking Americans to rely upon the sporadic government handouts Biden’s extra revenue might fund. We need to encourage job development to give these taxpayers the solid income they deserve.

      ____

      Bloink: Section 1031 is simply too easy for the wealthy to manipulate. We’re talking about real estate investors and developers who don’t need the income from the sale of a property—but don’t want to worry about paying their fair share in taxes. Today’s version of Section 1031 is a shell of what it once was—and it allows the wealthy to engage in tax-free transaction after tax-free transaction to avoid paying capital gains indefinitely. We need to call this what it is: a manipulative tax scheme to benefit Trump’s cronies in big business.

      Byrnes: Right now, we need businesses to invest in our economy more than ever. The real estate market in major cities is suffering—business owners can’t pay their rent, and many are forced to make tough choices. We shouldn’t be adding insult to injury by eliminating one of the only favorable tax provisions these real property owners can rely upon.

  • 0094. Unchanged Contribution Limits

    • The IRS recently released the inflation-updated figures for retirement account contribution levels in 2021. Participants in 401(k)s, IRAs, SEPs and other types of retirement accounts are only permitted to contribute pre-tax amounts up to the annual contribution limits. For 2021, those contribution limits will remain unchanged from their 2020 values. As a result, taxpayers can continue to contribute up to $19,500 to a 401(k) (with an additional $6,500 catch-up contribution for taxpayers who are at least 50) and $6,000 to IRAs (with a $1,000 catch-up limit).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the wisdom of keeping 2021 contribution limits at their 2020 levels.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: We have to remember that the way the inflation-adjusted contribution limits are determined is a mathematical formula. Items that are adjusted annually for inflation are adjusted based on the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). Those figures are published by the Department of Labor. The IRS has zero say in whether something “should” be adjusted for inflation.

      Bloink: We should be encouraging retirement savings more than ever right now. We all know that lawmakers have authority to jump in and change the game at a moment’s notice—we’ve seen that more than ever in 2020. After taking such substantial steps to help consumers out this year, it seems completely reasonable that we could make a change to the indexing procedure to give retirement savers a break and encourage greater contribution levels in this challenging time.

      ____

      Byrnes: Inflation-indexing isn’t a policy choice for the agencies to make. It’s determined based on a law that was carefully considered and passed by Congress. It’s not like we’re dealing with some antiquated IRC provision—Congress specifically considered and changed the inflation-indexing rules as recently as the 2017 tax reform.

      Bloink: We have a unique opportunity right now. Yes, inflation-indexing rules are statutorily set by Congress. That doesn’t mean Congress can’t change those laws or grant a temporary exemption for a single unprecedented year. In the midst of seemingly unending uncertainty, Americans are more attuned to the need for savings than ever. Why not take the opportunity to encourage greater retirement savings?

      ____

      Byrnes: The IRS has enough to worry about without throwing policy decisions into the mix. The rates remained stable this year and that makes sense. After all, we haven’t seen much in the way of economic growth and we haven’t even rebounded from the downturn that shocked the country in the spring. If Congress wants to make a policy change, they’re free to do so—but as far as the numbers the IRS has released, it makes perfect sense that they’d remain unchanged. Aren’t Democrats always talking about how much we need the tax revenue? Americans have plenty of ways to save without offering a tax incentive.

      Bloink: Sure, there are a wide variety of investment and savings options out there. They all have their place. However, we should be focused on capitalizing on this unique moment in history by trying to get Americans to maximize the retirement account option. After all, once they’ve contributed, they’re more likely to leave those funds alone because of early withdrawal penalties. We’re missing an opportunity to tout the benefits of retirement income security for those families with the option of actually saving more, rather than less, during this unprecedented time.

  • 0095. ESG Investing

    • For the past few months, all eyes have been on the Department of Labor as the agency began releasing guidance on fiduciary considerations when considering social factors related to an investment. Socially responsible investing is broadly known as “ESG” investing—making investment decisions based on environmental, social and governance issues. Many retirement plan fiduciaries consider factors such as a company’s community involvement, commitment to paying workers fairly and environmental impact. In the first round of DOL guidance, the agency focused specifically on ESG issues. The final regulations step back slightly and focus on whether fiduciaries can consider non-financial (non-pecuniary) factors in making investment choices.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the DOL’s position regarding ESG investing.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Allowing retirement plan fiduciaries to focus on ESG and other non-financial issues when investing plan assets is a dangerous proposition. The DOL rule recognizes this. Plan fiduciaries should be focused on making responsible investment decisions that protect the retirement assets of hardworking Americans. That should always be their primary consideration regardless things like community involvement that have no real bearing on the business’ financial performance.

      Bloink: We all know that environmental, social and governance issues can impact a business’ eventual success or failure. Companies don’t operate in a vacuum. It’s not only socially responsible for plan fiduciaries to consider these factors—examining ESG issues when choosing investments can also lead to stronger financial performance in the long run.

      ____

      Byrnes: Retirement plan fiduciaries have an obligation to do everything they can to secure plan assets. Sure, some plan fiduciaries might want to support environmental causes or workers’ rights—and they can engage in ESG investing strategies using their own personal funds. When it comes to handling investments on behalf of Americans who depend upon them, fiduciaries should be laser-focused on all issues related to securing the best financial outcome available. ESG investing can blind the plan fiduciary to that obligation.

      Bloink: Plan fiduciaries have to consider every potential investment option as a whole in order to adequately live up to their responsibilities. Limiting consideration of non-financial factors can remove important pieces of the puzzle. I’d argue that social issues should be considered when evaluating every investment option.

      ____

      Byrnes: Non-financial factors might be something to consider when all other financial factors are equal. Despite this, plan fiduciaries shouldn’t have authority to invest other people’s hard-earned assets to further their own social agenda. In reality, if the DOL hadn’t acted to limit the ability of plan fiduciaries to invest based on their social beliefs, these fiduciaries would be using someone else’s money to support the causes that they believe in personally. That’s not a fiduciary’s role.

      Bloink: ESG factors can actually increase the odds that an investment will perform well over time. A company’s stance on things like renewable energy and equal pay can give the company an edge over the competition as time goes by—especially in this rapidly changing market. DOL guidance should seek to encourage this type of investing, not scare fiduciaries into avoiding socially responsible investments altogether for fear of fiduciary liability.

  • 0096. State Taxes and Telecommuting

    • As the country continues to struggle with the coronavirus pandemic, more people are telecommuting than ever before. While some work from home arrangements are expected to be temporary, many employees can expect to be working from home indefinitely. This has created complexities in the way that state income taxes are imposed. Not all employees live and work in the same state. States have only begun to grapple with the complexity of what happens when an employee is actually performing the work in one state, but the employer is located in a neighboring state. The impact could be significant, especially where state income tax regimes are particularly different.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether state governments should impose state-level income taxes on workers who are telecommuting during the COVID-19 era.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: States are struggling with intense revenue shortfalls and sharply increased public spending during this unprecedented year. Millions of Americans continue to collect unemployment benefits—and tax revenues are expected to be lower than ever before. Those workers fortunate enough to have a telecommuting option should be expected to contribute to the state in which the work is actually performed, not the state where the business is located.

      Byrnes: The telecommuting phenomenon is temporary. It’s a logical and sensible response to an unprecedented situation—and a great way to keep workers as safe as possible. We don’t know when we’ll see the end, but we will someday return to normal working conditions. Revamping state-level rules about income tax nexus makes absolutely no sense and would only serve to further complicate an already complicated situation.

      ____

      Bloink: With workers telecommuting more than ever, it only makes sense that states should have the ability to bring those workers into their income tax system–even if their physical office is located in another state. The relevant concept here is where the work is actually being performed–not where the employer happens to be located. That’s always been the governing principle behind imposition of state-level taxes.

      Byrnes: States shouldn’t have the authority to introduce chaos into their respective tax regimes by attempting to tax telecommuting employees who wouldn’t ordinarily earn income in their state of residence. State and local taxes are governed by a system that’s complicated enough without states’ trying to capitalize by changing the entire tax landscape.

      ____

      Bloink: The employment has changed dramatically in just a few short months. States are understandably struggling across the board. Those states should have the ability to make corresponding changes necessary to support services within their states—after all, if an employee no longer commutes into the neighboring state, it makes very little sense for the employee to fund that neighboring state’s programs and policies.

      Byrnes: When workers are working from home temporarily, the same principles that have always applied should be kept–at least for the time being. A chaotic patchwork of state-level changes is the last thing anyone needs to be dealing with right now. We have to expect that life will return to some degree of pre-pandemic normalcy at some point. We shouldn’t take steps that we’ll then have to undo a few months down the road. It’s the employee who will suffer the most by the type of uncertainty this type of tax regime would create.

  • 0097. 2020 Tax Extenders

    • Negotiations over certain government tax incentives, like the Work Opportunity tax credit, renewable energy incentives and even the mortgage insurance premium deduction have become an annual tradition. As the holiday season approaches, one question is on the minds of many taxpayers: will the so-called “tax extenders” be renewed for 2021 and beyond? In the midst of economic uncertainty and a new wave of COVID-19 outbreaks nationwide, the tax extender provisions have received relatively little attention in 2020. However, the question remains—should Congress continue its tradition of renewing these temporary provisions from year to year, or simply consider whether to make some or all of them permanent.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the tax extender debate.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Many of these tax extender provisions are temporary because they’re designed to promote some policy objective or economic growth over the short term. That’s why we keep them temporary instead of making them permanent. They require a reevaluation each year to see how they’ve impacted the nation and there’s no reason we can’t continue in that tradition, extending relevant provisions and eliminating irrelevant or ineffective incentives year after year.

      Bloink: The extender provisions are a constant headache, and they can’t encourage anything when taxpayers don’t know whether they will be relevant year after year. Even if Congress extends them retroactively, taxpayers are left to wonder what happens if they opt to skip a year. The current system could be vastly improved if Congress would just get together and agree to make certain extenders permanent.

      ____

      Byrnes: Businesses need a boost this year. Re-upping these extenders will provide a huge benefit to the economy–more so than we typically see in your ordinary year. But every year is different. We don’t have to commit to continuing these extender incentives forever. Forcing Congress to agree on making the extenders permanent is likely to result in no action at all given the current political climate in Washington.

      Bloink: I’m not necessarily saying we should get rid of all extender provisions. Certain provisions that really benefit Americans should be made permanent. They should be made permanent so that businesses and individuals can rely on powerful government incentives and not have to worry about guesswork. Relying upon the extension process year after year is just lazy, and it hurts the people we’re trying to help by offering these government incentives.

      ____

      Byrnes: Keeping the extender provisions temporary is the best way to ensure that they’ll be around to help the economy into 2021 and beyond. It’s true that Congress has a lot of work to do before year-end. However, giving the economy the boost it needs by way of offering help to businesses should be a priority. There’s no reason our elected officials can’t take the time to sort these extender provisions out before the year is over so that companies know what they have to look forward to in terms of government help in the new year.

      Bloink: We just finished up a tax year where taxpayers have faced nothing but uncertainty. We need to either make the extender provisions permanent or toss them. Continuing with the extender system doesn’t encourage anything but wasteful negotiation in Congress when we should be focused on getting the next stimulus relief package out to Americans who are suffering, rather than engaging in extender negotiations that will only benefit big businesses over the American people.

  • 0098. Biden's Retirement Plan

    • President-elect Joe Biden has announced several proposals on how the tax treatment of retirement savings might change in the coming years. Biden’s retirement proposal includes eliminating the current pre-tax treatment of traditional retirement plan contributions. Under current law, taxpayers are entitled to contribute up to $19,500 in pre-tax dollars to a 401(k). Under Biden’s plan, taxpayers would be entitled to a 26% “matching” contribution. The 26% match would apply across the board, regardless of the taxpayer’s ordinary income tax bracket.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on Biden’s plan to shift the tax treatment of 401(k) contributions.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Lower and middle income taxpayers are facing an impending retirement savings crisis. The fact is, lower income taxpayers are simply unable to save at a rate that would produce a secure income source during retirement. We have to make some type of change to provide a stronger savings incentive for taxpayers at a high risk of living in poverty during retirement. This change does just that by greatly encouraging low and middle income taxpayers to save for retirement.

      Byrnes: This is a hidden tax on the wealthy. Rather than positioning the 26% match as a floor, it’s an across-the-board rule. Taxpayers in higher tax brackets would have a distinct disadvantage to save for retirement under this plan. It doesn’t make sense that we would want to discourage anyone from saving for retirement.

      ____

      Bloink: Currently, a pre-tax contribution simply reduces the taxpayer’s taxable income. For those in lower income tax brackets, it’s often an insufficient incentive to encourage saving. Taxpayers would, for example, receive a $2,600 matching contribution based on a $10,000 contribution. For taxpayers in lower tax brackets, this represents a much more substantial benefit than a simple reduction in taxable income–especially if the taxpayer isn’t paying much based on lower income in the first place.

      Byrnes: This rule is telling single people who earn more than around $163,000 (the start of the 32% bracket) that their retirement contributions aren’t providing the same type of tax value that they have for years. This makes zero sense and completely goes against Biden’s repeated promises to avoid any tax increases on taxpayers who earn less than $400,000 per year.

      ____

      Bloink: We have to choose are battles. The wealthy are able to max out their pre-tax retirement contributions and take advantage of a myriad of other savings options. These aren’t the taxpayers whose retirement security we have to worry about. These aren’t the taxpayers who will actually rely upon Social Security during retirement. It makes perfect sense that the system should be designed to provide a stronger benefit for those who have fewer retirement savings options.

      Byrnes: In addition to the basic savings disincentive, this is an extremely complex proposal from an administrative standpoint–it’ll never pass. We should be taking steps to make the tax code more simple, not so unreasonably complex that ordinary Americans can’t even understand the way their retirement savings will be taxed.

  • 0099. Business Meal Deduction

    • Both Democrats and Republicans in Congress have floated proposals on how to deliver the next set of COVID-19 stimulus relief to individuals and businesses. While there seems to be consensus on the fact that some additional relief will be necessary, opinions on how to deliver that relief are extremely diverse. One recent GOP proposal includes a rule that would make business meals 100% deductible in order to support restauraants harmed by their unique position in today’s uncertain economy. Under current law, business meals are deductible up to 50% of the cost of the meal—with the caveat that the meal cannot be lavish or extravagant.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the value of doubling the business meal expense deduction as a form of coronavirus relief.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: The hospitality industry has been uniquely harmed by the unprecedented COVID-19 pandemic—and they’re not out of the woods yet, not by a long shot. It makes perfect sense that our next stimulus relief package should provide relief that’s targeted toward helping restaurant owners survive. These business owners experience tight profit margins even in pre-pandemic times. A huge number of restaurants have already closed for good. It’s time we take action to protect our small business owners.

      Bloink: I’m all for providing additional relief to small business owners. In fact, I’m all for providing relief specifically to small restaurant owners. This GOP proposal is the wrong way to go about it. When you carefully consider the true beneficiaries of a rule that allows full deductibility of business meals? You’ll see that this is just another veiled way to provide a tax break for wealthy businesspeople who can afford the cost of extravagant meals.

      ____

      Byrnes: The restaurant industry has been subjected to more intense restriction and more dramatic economic damage than any other industry. Expanding the business meal deduction would provide backdoor relief to these small business owners—who, of course, should also qualify for relief that’s made generally available to all small business owners in the next relief bill.

      Bloink: Hardworking Americans can’t put food on the table, and Republicans in Congress are focusing on ways to provide yet another tax relief option for big businesses and wealthy taxpayers who need it the least. These are people who don’t need to be encouraged to enjoy dining in a restaurant. If it’s safe, they have the funds to eat in restaurants regardless of whether the meal is deductible. This provision goes a long way to encourage expansion of the so-called “three martini lunch” instead of providing real relief where it’s needed the most.

      ____

      Byrnes: Encouraging businesspeople to eat out in restaurants can dramatically increase the profitability of restaurants during this difficult time. This is a simple and effective way to provide that relief. There’s really no valid reason to oppose the idea.

      Bloink: The GOP proposal only tangentially benefits small restaurant owners who need much more substantial relief that actually is targeted toward their business. In other words, they need direct aid. Approaching the problem this way essentially gives wealthy businesspeople yet another hidden tax break and distracts from the real issues. The approach is insulting when you consider how ordinary taxpayers are struggling. We need to focus on providing stimulus to American families and raising the unemployment compensation rate, not providing backdoor ways to give tax breaks to those who need help the least.

  • 0100. Raising RMD Age to 75

    • Currently, the RMD rules require that owners of traditional retirement accounts (including IRAs and 401(k)s) begin taking distributions from those accounts once the account owner reaches age 72. In general, if an individual owns a traditional retirement account that was funded with pre-tax dollars, he or she is required to begin taking taxable distributions from that account beginning April 1 of the year following the year in which the owner reaches age 72. For many taxpayers, this arguably requires them to begin taking retirement distributions regardless of whether they have, in fact, retired. Prior to 2020, the required beginning age was 70 ½. Members of Congress have once again proposed modifying the RMD age so that taxpayers would not be required to draw upon retirement funds until they reach age 75.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about once again raising the RMD age.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: This proposal is just a reflection of reality. Taxpayers are working longer than ever before—and they’re also living longer than ever before. There’s no reason working Americans should be required to take retirement distributions when they haven’t retired—and face severe penalties for failing to take those unnecessary distributions. We want to encourage saving, and we want to see taxpayers with IRA balances sufficient to fund a lengthy retirement, whenever that retirement might actually begin—this is a good thing.

      Bloink: 75 is an arbitrary number. This proposal is just yet another hidden way to give a tax break to the fortunate, wealthy Americans who don’t actually need to draw upon their retirement savings when they actually retire from active work. Americans are working later in life, but by and large, working class Americans who continue to work past age 72 are doing so in a reduced capacity so that they can supplement their Social Security and retirement account distributions—out of necessity, not because they don’t need their retirement funds.

      ____

      Byrnes: Taxpayers should be allowed to decide what to do with their own hard-earned dollars. Once the taxpayer reaches age 70, Social Security benefits begin even if they were previously deferred, so the reality is that many taxpayers have sufficient income even if they are working in some reduced capacity. I don’t see this as a ploy to benefit the rich at all—wealthy taxpayers aren’t going to derive significant benefit from another 3 years of tax-deferred growth. This only gives taxpayers the option of letting their savings grow while they continue to work.

      Bloink: Raising the age by three more years really only allows the wealthy to continue to defer taxes for another three years—the average American who’s reached age 72 needs the distributions to fund their living expenses. While this change would seem to benefit everyone, in reality, only the well-off would actually benefit. We’ve just raised the age to 72. We don’t need another increase to further diminish the tax base in this already challenging time. In fact, I see this as a slippery slope toward raising the minimum retirement age for Social Security beneficiaries who are, in fact, relying on those government funds.

      ____

      Byrnes: You can’t compare Social Security to RMDs. Social Security is taxed completely differently. There’s no slippery slope argument here, just the argument that taxpayers should be able to leave their money alone until they actually need those funds in retirement. We’re not talking about penalizing those who choose to withdraw before age 75. Taxpayers still have the option of taking the funds sooner if they need the money, without worrying about any type of penalty.

      Bloink: The slippery slope is the fact that we’re already raising the normal retirement age for Social Security purposes—the age at which taxpayers are entitled to collect full retirement benefits is increasing gradually and will likely increase even further. Why not 75, if we don’t think taxpayers should have the right to retire by that age? If we think that taxpayers don’t need retirement money until age 75, and Social Security is meant to provide retirement income, it’s only a matter of time before we’re raising the Social Security normal retirement age even higher and hurting ordinary Americans.

  • 0101. Mandatory COVID Vaccination

    • Multiple pharmaceutical companies have recently rolled out much-anticipated COVID-19 vaccines. While only frontline health care responders and certain high-risk Americans generally have access to the vaccine, it is expected to become widely available during the first two quarters of 2021. One controversial element that has arisen is whether employers should be permitted to require employees to take the vaccine in order to remain employed. Similarly, some have questioned whether employers should be permitted to require employees to submit to regular COVID-19 testing as a preventative measure.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the issue of mandatory vaccination and testing.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The federal government has largely dropped the ball by failing to take sweeping action to limit the spread of COVID-19. Had the government acted sooner, thousands of American lives might have been saved. At this point, it’s up to business owners themselves to take action and do everything we can to control this virus—even if that means requiring employees to submit to vaccination and testing.

      Byrnes: Mandating COVID-19 vaccination or testing is fundamentally un-American. If this were any other illness, there would be absolutely no question that employers shouldn’t have the right to base employment decisions on what is, essentially, a health care choice. Americans should have the right to determine whether they want to submit to testing or vaccination—and they shouldn’t have to worry that their livelihood will be taken away if they don’t want to.

      ____

      Bloink: We need to get this country back on track. One of the only ways we’ll be able to provide confidence to employees and customers is to require across-the board vaccination and testing. We can’t wait for the government to step in and take action. The damage that has been done is already unprecedented. Why would we want to wait for things to get worse?

      Byrnes: People deserve to have the option of determining how to approach the virus at the individual level. Employers shouldn’t be in charge of determining how this situation unfolds. Cancer is also deadly. Imagine if this country allowed employers to make employment decisions based on routine cancer screenings.

      ____

      Bloink: You can’t compare this novel coronavirus to cancer. The difference is clear—failing to submit to testing or vaccination puts everyone else in the room at risk for contracting the disease. Some of these employee privacy concerns will just have to take a backseat in our fight to get the economy reopened and protect the health and safety of higher risk Americans. No one is immune from this virus, and everyone should be required to do their part to fight the spread.

      Byrnes: The bottom line is that there’s absolutely no justification for giving an employer this type of power over employee health care decisions. Health issues should not be used to determine whether someone is eligible for general employment opportunities. Unless there’s some clear and unique risk to the particular employment situation, mandatory testing and vaccination shouldn’t become the employer’s choice.

  • 0102. PPP Loan: 60/40 Allocation Rule

    • In order to qualify for loan forgiveness under the federal Paycheck Protection Program (PPP), business clients are required to spend at least 60 percent of loan proceeds on qualified payroll costs.  These costs, of course, include things like employee wages and salary (up to a $100,000 per-employee annual cap), rent and qualified health expenses.  Congress maintained this 60/40 allocation rule in the Consolidated Appropriations Act of 2021, which both extends the current PPP loan program to new borrowers and authorizes a “second draw” loan option for smaller employers.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the extension of the 60/40 allocation rule.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: PPP loans aren’t merely a giveaway for business owners.  We need to have a way to make sure that PPP borrowers are spending these loans on authorized purposes.  The 60/40 allocation rule provides a degree of accountability so that business owners can’t simply spend the funds to grow their business in whatever way they choose.

      Byrnes: The 60/40 allocation rule creates an unnecessary complication in a relief provision meant to give business owners help.  Small businesses are suffering.  They should be entitled to use the funds however they’ll best suit the business.  Giving employers more flexibility so that they don’t have to worry about the nit-picky details provides leeway to focus on the bigger picture: getting the business back on its feet in whatever way possible.

      ____

      Bloink: Eliminating the 60/40 rule would give business owners carte blanche authority to use the loan proceeds for whatever means they see fit.  The entire purpose behind the loans is to allow struggling business owners to keep the lights on, pay their rent and, essentially, keep employees on payroll.  There has to be some type of accountability in order for this highly experimental program to provide any benefit to the taxpayers who are funding it with their hard-earned tax dollars.

      Byrnes: Yes, the funds are meant to support the economy.  But how one business succeeds might not closely mirror what’s best for another business owner.  When applying for forgiveness is overly complex, business owners might shy away from asking for the loan in the first place and simply opt to shut their doors.

      ____

      Bloink: Sure, the program’s administration has to be reasonable.  That’s why the new law contains a streamlined procedure for business owners who borrowed $150,000 or less in government funds.  The 60/40 rule is necessary because, unfortunately, we can’t trust everyone to simply do what’s right.  We’ve already seen businesses who have used PPP loan funds for purposes entirely unrelated to supporting their business.  We need to keep a firm structure in place to drive use of loan proceeds toward keeping employees employed.

      Byrnes: Fraud within the program can be handled through other means.  As a whole, we need to make the PPP loan program workable for the very small business owner who can’t afford to hire someone to make the complex calculations required under the current law.  We’re also navigating a brand new economy—and so are the business owners this loan program is meant to benefit.  If we’re overly rigid in requiring business owners to stick to the business model that worked before the pandemic, these loans might not end up helping anyone at all.

  • 0103. Payroll Tax Repayment Extension

    • Beginning September 1, 2020, employers had the option of deferring the employee portion of the payroll tax through December 31, 2020. Payroll taxes are split equally between employees and employers. Congress provided a payroll tax deferral option for the employer portion last spring, but took no action with respect to employees’ obligations. The employee deferral provision allowed employers to stop withholding the 6.2% employee portion of the Social Security tax for employees who earn less than $4,000 bi-weekly (pre-tax) or $104,000 annually. Under prior IRS guidance, deferred employee payroll taxes must be repaid during the period beginning January 1, 2021 and ending April 30, 2021. The year-end Consolidated Appropriations Act extended the repayment period through December 31, 2021.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the extension and its impact.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: We absolutely needed this extension. This extension gives taxpayers who benefitted from the temporary payroll tax cut, yet are still struggling, additional time to repay the deferred amounts. It also gives employers the time they need to implement programs and manage employee expectations with respect to the repayment which, of course, will generally be accomplished in the form of increased employment taxes throughout 2021.

      Bloink: The economic climate hasn’t improved so much that we should expect average American workers to shoulder a tax hike either immediately or in a few short months. Fortunately, many employers ignored the employee payroll deferral option for just that reason. Extending the repayment deadline only kicks the can down the road to be dealt with at a later date.

      ____

      Byrnes: Because the repayment can now be spread over a longer period of time, it’s likely to present less of a hardship to employees who took advantage of deferral. In fact, most employees probably won’t even notice the additional taxes taken out of their checks.

      Bloink: Vaccine hopes are strong at this point—and that’s a great thing. Still, we have no reason to believe that workers who have struggled throughout the pandemic will be in the position to shoulder a tax hike at any point in 2021. They’re going to need every penny they can to get by. Remember, many were working reduced hours or at reduced pay if they were able to work at all.

      ____

      Byrnes: The economy is rapidly improving. Now that vaccines are being rolled out, workplaces can start safely returning to normal. People are ready to get back to their normal lives and I think we can expect a huge economic surge in 2021. Employees benefited dramatically from the tax cuts late in 2020 at a time when most really needed the money. Now, they’ll be able to repay the funds at a time when they’re more equipped to handle the slightly increased tax burden.

      Bloink: This was an ill-fated idea from the very start, and I think employers who did allow deferral of employee payroll taxes are going to be the ones who need help once the bill comes due. We need to provide more sweeping relief that simply forgives the amounts that have been deferred through a program that shouldn’t have been enacted in the first place. A few extra months to repay deferred amounts just isn’t going to cut it.

  • 0104. Federal Liability Shield

    • The Trump administration and many Republicans in Congress have long supported a federal “liability shield”. The liability shield would protect businesses, schools, hospitals, nursing homes and other entities from COVID-19 related lawsuits in the future. Many groups have feared that they will face extensive litigation over their handling of the pandemic response. The idea of providing a liability shield delayed the year-end Consolidated Appropriations Act (CAA) of 2021—but the law was eventually signed by the president without such protections.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the government’s decision to pass the CAA without including a COVID-19 liability shield for any entities.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: Litigation is one of the only ways the average American can hold businesses and other organizations accountable for their actions. Businesses, schools and other entities need to be held accountable for the actions they’ve taken in response to the COVID-19 pandemic. Shielding businesses from all liability claims related to their actions would eliminate any form of accountability.

      Byrnes: We’re dealing with an unprecedented situation. Different states and localities have handled the response to the pandemic differently. Private business owners should not be responsible for reducing the spread of COVID-19. These entitles shouldn’t be responsible for the fallout from a public health crisis that’s extended far beyond the scope of anything we’ve ever seen in our generation.

      ____

      Bloink: No one is arguing that businesses have a legal duty to reduce the spread of COVID-19 to zero. On the other hand, these entities absolutely have a duty to take reasonable, prudent precautions to keep others safe. The idea of a liability shield is something that lobbyists for big businesses have seized upon in an effort to capitalize on the pandemic from a business perspective. Remember, business owners and property owners always have a duty to take reasonable precautions to keep others safe. That duty has always existed under basic tort law principles.

      Byrnes: No one knows exactly which precautions are strictly necessary–and it’s incredibly difficult to trace how or when a person contracted the virus. Allowing individuals to sue businesses for damages if they become sick is what’s unreasonable–it gives people carte blanche to try to capitalize on the pandemic financially.

      ____

      Bloink: Of course, courts will be reasonable in determining whether a business should be financially liable if a worker, customer or someone else falls ill because of actions taken because of that business–but removing all form of liability is completely unreasonable. The bar for filing a personal injury lawsuit is fairly high as it is. Removing the right to sue entirely would negatively impact every American—because none of us are able to insulate ourselves entirely from the threat of contracting the virus.

      Byrnes: The threat of widespread COVID-19-related litigation could cripple the economy for years to come. The government has already provided extensive stimulus relief to both businesses and individual taxpayers. I wouldn’t rule out the possibility of additional individual stimulus relief. Giving Americans the right to sue for damages on top of the relief that’s already been provided isn’t necessary. All it would do is hinder an economic recovery that’s already sure to be difficult in the years to come.

  • 0105. State and Local Government Stimulus Relief

    • Financial relief for overburdened state and local governments was one item that was missing from the massive year-end stimulus package. Democrats had initially requested about $1 trillion in direct relief for state and local governments and had reduced the request to around $160 billion during negotiations. The provision was excluded entirely from the year-end package, but would have provided federal assistance to help fill budget gaps. Some state and local government authorities have already announced that they’ll soon be required to make cuts, including job cuts—leading to calls for prioritizing state and local government relief in the next round of stimulus funding.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about prioritizing financial relief for state and local governments in the next round of COVID-19-related stimulus funding.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: We need to get aid to struggling state and local governments—this should be a top priority in the next round of stimulus funding. Even the most well-managed state and local governments are facing massive shortfalls. And remember that state and local governments, unlike the federal government, are required to balance their budgets. All of this comes at a time when taxpayers are depending upon state governments to provide assistance more than ever.

      Byrnes: State and local governments are struggling just like everyone else. But prioritizing state and local government stimulus relief isn’t the best way to get the economy back on track. The federal government should prioritize offering assistance to individuals and small businesses. That eases the burden on state and local government resources as more people rely on federal aid.

      ____

      Bloink: Not providing immediate and substantial assistance to state and local governments would be a huge mistake. Giving additional stimulus checks to all Americans, regardless of whether they’re suffering, makes little sense–we’d be better off providing relief to the governments who are in charge of distributing the funds to citizens who are actually suffering.

      Byrnes: Prioritizing individual and small business stimulus relief ensures that we aren’t rewarding state and local governments that have mismanaged their funds during a crisis. Providing flat payments to individuals is an effective, simple solution to the problem. It gets money into the hands of Americans, who in turn use those funds to stimulate the economy—creating jobs and lessening the burden on state and local governments.

      ____

      Bloink: When we provided the initial round of individual stimulus funding in the spring, that made sense. We had to get funds to individuals quickly to prevent a domino effect that could have created an even more widespread economic collapse. Now, we need to focus on helping the state and local governments that fund the police, firefighters and even nurses and other front-line workers who we need to protect. It’s their jobs that are on the line if we fail to prioritize these government entities in the next round of funding.

      Byrnes: State and local government shortfalls will start to decline if we can make real traction in reopening this country and getting people back to work. Higher employment rates mean higher tax revenues across the board. We should focus our efforts on getting the economy running again through a combination of individual/small business stimulus and assuring business owners that they won’t be exposed to lawsuits for reopening.

       

  • 0106. Biden's New Stimulus Check Plan

    • President Biden quickly jumped into action after being sworn in. He would propose providing an additional individual stimulus check to individuals as soon as a new round of stimulus funding can be passed. Current proposals call for a $1,400 per-person payment for any individuals that earn less than the annual threshold limits which, so far, remain unchanged at $75,000 per individual and $150,000 for joint returns. This new proposal follows on the heels of a $600-per qualifying individual payment that was included in the 2020 year-end stimulus legislation and a $1,200 per-person payment last spring.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about this new round of individual stimulus funding.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: From an economic standpoint, we’re nowhere near recovering from this pandemic. Anyone who thinks otherwise is kidding themselves. The law passed at the end of the year only takes us through March. American families continue to suffer despite a surprisingly strong stock market that, to be clear, primarily benefits the wealthy in this country. If we don’t provide regular relief at the individual level, the economic recovery will take even longer than necessary.

      Byrnes: We just passed a stimulus package—in fact, the ink on that year-end stimulus package is barely dry. We need more time to evaluate how that impacted the economy—and we need to take the time to see how the availability of the vaccine will impact the economy. We can’t keep rushing into simply sending taxpayers a check every few months.

      ____

      Bloink: Americans deserve assistance, and we have to stop dragging our feet when it comes to providing that much-needed help. We have to start taking a long-term approach to providing relief for families. That’s going to mean getting money into the pockets of Americans who can’t afford to pay their rent and feed their families. $1,800 in stimulus relief over the course of an entire year is not going to cut it for most Americans.

      Byrnes: This isn’t a socialist state, regardless of what Democrats would have us believe. We can’t keep providing handouts to Americans who have the ability to go to work—and who are already collecting unemployment compensation that’s supplemented with federal funds. A year into this pandemic, we need to provide more targeted relief than simple checks in the mail to all families across the board.

      ____

      Bloink: Even families who are lucky enough to have savings blew through those savings months ago. There might be a way to provide more targeted relief—but the previous administration and Republicans in Congress have spent a year dragging their feet. Now, we have to take action to get relief to Americans quickly. Biden’s initial plan to expand tax credits and provide a larger stimulus check to struggling families takes us in the right direction.

      Byrnes: This president just took office and seems obsessed with raising taxes. We should be focused on providing targeted relief to the industries hardest hit by the pandemic, rather than across-the-board funding for families who may be doing just fine from an economic perspective. If we keep providing stimulus checks for Americans who aren’t really struggling, we’re going to have no choice but to raise taxes to untenable levels for decades to come.

  • 0107.1. Student Loan Stimulus

    • In response to the COVID-19 pandemic early in 2020, the CARES Act introduced a provision that allowed employers to offer student loan repayment assistance to employees under IRC Section 127. Under the law, employers could offer up to $5,250 in student loan assistance without raising the employee’s taxable income for 2020. To offer this tax-free employment benefit, employers must first adopt a formal educational assistance program (EAP) for employees under the IRC Section 127 rules. Because the option was so temporary, it initially attracted very little attention. However, the tax-free student loan assistance option was extended through 2025 by the year-end stimulus package.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the potential impact of this new tax-preferred employment benefit option.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: Americans are struggling with student debt more than ever in the face of the pandemic. Allowing employers to offer student loan repayment assistance as a tax-free benefit is a great alternative to the proposals that we simply forgive this student debt. This should be seen as a win across the board—both for employees who are struggling and employers who are looking to find non-traditional ways to motivate valuable employees.

      Bloink: Tax-free student loan assistance is, of course, a great idea. It’s the way the assistance must be structured under the law that makes me wary. Employers who don’t already sponsor a formal IRC Section 127 educational assistance program might be wary of adopting yet another type of employee benefit plan with yet another set of rules. It adds a level of complexity to this important benefit that’s really unnecessary.

      ____

      Byrnes: This type of nontraditional employment benefit can be a valuable part of an employee benefit package and function as a part of the person’s compensation, rather than an outright giveaway across the board. So many employees haven’t returned to a traditional office setting—and many anticipate never working full-time in an office again. We need to find new ways to incentivize employees who add value to the employer’s operations.

      Bloink: Employers should be able to provide a tax-free student loan repayment benefit, yes. The way this law is structured makes the option overly complex for many small business clients. Americans need help reducing the student loan burden now, and Biden’s play to forgive $10,000 per-person in student loan debt is a much more effective way of getting them the help they need.

      ____

      Byrnes: We’re living in a world where benefits like free meals in the office or tax-free transportation benefits no longer carry any weight to employees who are working from home. Why not allow employers to get creative in the types of benefits they want to offer their employees? This relieves some of the financial burden for employees without simply transferring that burden to the government in the form of a handout.

      Bloink: I’d anticipate that many small business owners are going to ignore this option entirely. For some, it might only benefit a few workers and at what administrative cost? The last thing struggling small business owners want right now is more paperwork. The most effective way to relieve the student loan burden that’s dragging down this economy is with an across-the-board student loan forgiveness program.

  • 0108. Biden on Agency Guidance

    • The IRS, Department of Labor (DOL) and related agencies typically release interpretive guidance about new laws and regulations in the form of frequently asked questions, or FAQs. Often, those FAQs are periodically updated to reflect new issues that might arise over time—and new lines of thinking. In other words, the IRS and other agencies often indicate changed positions in FAQs without enacting a formal new set of regulations. Although taxpayer advocates have recently suggested that taxpayers should be entitled to rely upon this informal guidance when taking action, the Trump administration disagreed. However, President Biden has now taken steps to reverse the Trump position on informal agency guidance by executive order—indicating that reliance on informal guidance may be sufficient to avoid future penalties.

      We asked two professors and authors ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether taxpayers should have the right to rely upon informal agency guidance in taking actions based on that guidance.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: In the past year, we have seen a dramatic increase in informal guidance from the IRS, DOL and related other agencies—often in the form of FAQs. While these are unprecedented times, informal guidance is often the only solid guidance that taxpayers have to rely upon. They provide the clearest, succinct summary of the agency’s thoughts with respect to enforcing the law. Taxpayers should fully expect that they can rely upon this guidance in taking action without fear that those FAQs will later be changed and applied retroactively.

      Byrnes: Taxpayers should not be relying on any type of informal guidance, including agency FAQs. Treating these documents as though they were legally enacted laws creates a confusing patchwork of guidance for taxpayers to sift through. Laws and regulations are what people should look to when determining their actions. By definition, informal guidance doesn’t have the full weight of the law behind it and should not be used to inform taxpayers’ decision-making.

      ____

      Bloink: Unfortunately, informal guidance is sometimes all that we have available. When FAQs, IRS notices and other informal materials are the only guidance that taxpayers have, they should absolutely be able to rely upon them as authoritative. When the IRS decides to amend this guidance, that amendment should be prospective in time only—and there should be a clear record of when the change is made. I do agree that the current system can be confusing, but we have to remember that the agencies can’t adopt formal regulations in the blink of an eye and we need to do what we can to offer guidance.

      Byrnes: Taxpayers should understand that informal guidance isn’t the law of the land. The law is the law of the land. Promulgating page after page of FAQ and other guidance only exacerbates the problem.

      ____

      Bloink: If the agencies don’t intend to allow taxpayers to rely upon informal guidance, that guidance shouldn’t be released. Unfortunately, it’s unworkable for the IRS to immediately release regulations interpreting the laws—especially when legislation is being signed into law as quickly as it has amidst the COVID-19 pandemic. Taxpayers need to be confident that their actions won’t later be challenged, especially when they need to take action quickly in light of quickly evolving circumstances.

      Byrnes: Agencies have every right to change their minds. That’s why regulations are proposed and go through a vigorous comment period before being finalized. Taxpayers offer their opinions and suggestions with respect to a set of rules and the IRS often changes to adopt those suggestions and make the law more workable. There is no comment period for FAQ—and because of that, they often fail to accurately reflect the big picture.

  • 0109. COVID Contact Tracing

    • Contact tracing via digital methods has largely fallen short in the United States. Earlier this year, two different pieces of legislation have been proposed that focus on protecting the personal information of Americans when using contact tracing to stop the spread of COVID-19. The laws would restrict the way personal information can be used, disclosed and stored. They would also require Americans to opt into contact tracing programs and require the organizations that collect the information to adopt policies and procedures designed to protect the confidentiality and security of emergency health information. The laws would also prohibit the use of private health information for discriminatory purposes. One of the laws would provide federal grants to states that use digital contact tracing technology in exchange for privacy protections for users.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about these laws on contact tracing technology use within the U.S.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The fact remains that we aren’t doing nearly enough to stop the spread of COVID-19. Thousands of American lives could have been saved had we adopted an aggressive approach to combatting this virus from the start. Now, Congress is proposing the types of contact-tracing laws that many Americans have been advocating for from the start. It seems that we finally have the support to pass these laws, which offer robust privacy protection for Americans who allow digital contact tracing.

      Byrnes: We’ve already taken significant steps to combat the spread of COVID-19. Daily case counts are substantially down from those sky-high numbers we were seeing earlier this year. Hospitalizations are down as well. Contact tracing is, at its very core, a violation of Americans’ privacy. Location tracking information can’t and won’t remain anonymous—and Americans shouldn’t be fooled into thinking that the government is capable of protecting their personal information. One of these pieces of legislation even allows private organizations to collect and store this data—meaning that these organizations will have piles of private health information at their disposal.

      ____

      Bloink: Both of the proposed laws would allow for much-needed contact tracing to stop the spread of COVID-19. They also take a detailed approach that shows Congress is taking privacy concerns very seriously. When it comes down to it, there’s always a tradeoff. The tradeoff here is that Americans give up a tiny bit of their privacy in order to protect the lives of countless others.

      Byrnes: Sure, these laws promise to protect confidential health information and limit its use to only specified permissible uses. Congress can promise all they want, but when someone else gains access to Americans’ private health information through a data breach or hacking, how can Congress ensure that those Americans who “opt-in” are protected? Short answer: they can’t.

      ____

      Bloink: These contact tracing laws take significant steps to protect Americans’ privacy, including by requiring an affirmative opt-in to the program, protecting the way the information is used and prohibiting any discrimination based on the health data that’s collected. Cybersecurity measures have improved drastically over the years—and there’s no reason to suspect that this information will be exposed.

      Byrnes: Even the IRS can’t protect taxpayer data from cybercriminals. It’s inevitable that something will happen to expose private information if the government and private, for-profit organizations are allowed to collect this data. Americans shouldn’t be lulled into a false sense of security that their private health information is protected. By detailing the steps that the government will take to protect their personal information, that’s exactly what these laws do.

  • 0110. Capital Gains Indexing

    • Republicans in Congress have recently introduced another bill that would tie capital gains taxes to inflation. Today, individuals are taxed on the entire amount of gain when they sell a capital asset, which is calculated by subtracting the client’s basis in the investment (usually the original purchase price) from the amount that the client received upon sale or disposition of the asset. The newly introduced legislation would essentially reduce capital gains taxes to account for inflation. The inflation adjustment would be allowable for stock, business property and other capital gains property held by people aged 59½ and older. The inflation adjustment would only kick in once the taxpayer has held the property for more than three years (rather than the typical one-year long-term capital gains holding period).

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the most recent proposal to index capital gains taxes to inflation.

      Below is a summary of the debate that ensued between the two professors.

       

      Their Votes:

      Byrnes

      Bloink

      Their Reasons:

      Byrnes: I’m all for indexing capital gains to account for inflation. In fact, not indexing capital gains for inflation unfairly penalizes clients who hold capital assets where the primary value in doing so is appreciation in value over time. Income tax brackets for ordinary income are adjusted for inflation every year to avoid increased tax liability generated solely because of inflation. I see no compelling reason why capital gains should be treated any differently.

      Bloink: This is just another Republican ploy to provide tax breaks for the wealthy. Indexing capital gains for inflation would add a huge amount to the federal deficit. The actual capital gains tax brackets technically already have an inflation indexing component, because they’re tied to the taxpayer’s ordinary income tax rate. The income thresholds for ordinary income taxes are adjusted for inflation each year. We don’t need a system that also exempts all inflation-based appreciation on an asset from tax—because when you look closely, you can see that we already do.

      ____

      Byrnes: Failing to index the capital gains system to inflation punishes taxpayers who are willing to make investments in our economy and take on the risk that that entails. The system right now is especially punishing for older Americans, who have likely held their investments for a longer period of time and are now ready to sell those assets in retirement.

      Bloink: The fact is, if taxpayers are selling investments in retirement, they should already see a reduction in their capital gains liability. Capital gains tax rates are directly tied to each taxpayer’s ordinary taxable income for the year. Once that income falls in retirement, retirees are able to take advantage of the reduced 15% or even 0% ordinary income tax rate—assuming we aren’t only trying to provide another tax break for the very wealthy Americans whose income levels do not actually decrease during retirement.

      ____

      Byrnes: Under our current system, taxpayers are being taxed on appreciation in asset value that is solely based on inflation. To make the capital gains tax system fair, we need to exempt that inflation-based appreciation from tax. We need to be clear that we are not taxing gains that solely result from appreciation in asset value over time.

      Bloink: This is a problem that only the very rich have to face. The long-term capital gains tax rate is already significantly lower than the top ordinary income tax rates, meaning that wealthy taxpayers already have an incentive to shift funds into capital gains-producing assets. Cutting capital gains rates even further without corresponding adjustments to rules governing capital expenses is the action that would be unfair, and would surely require cuts somewhere else, probably to programs that benefit lower and middle-income Americans.

  • 0111. FAMILY Leave Act Proposal

    • Members of Congress have proposed federal legislation that would mandate paid leave for employees on a nationwide basis. In response to the COVID-19 pandemic, Congress passed paid leave requirements for employees of small business owners. However, those leave requirements were limited and temporary—and were allowed to expire at the end of 2020. Now, several members of Congress have introduced the Family and Medical Insurance Leave (FAMILY) Act, which would impose paid leave requirements on all employers, regardless of size. Employers would be required to offer partially paid leave for employees dealing with (1) their own serious health condition, (2) birth or adoption of a child, (3) a child, spouse or parent with a serious health condition or (4) qualifying issues related to military deployment.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the proposed FAMILY Act.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: This type of nationwide federal paid leave requirement is long overdue. America lags far behind other developed nations when it comes to protecting our workers from unexpected issues that can arise over time. Some individual states have taken it upon themselves to impose their own state-level paid time off laws—and those have had widespread positive effects.

      Byrnes: The timing of this proposal is out-of-line with our current reality. This proposal would apply to all employers across the board, requiring them to provide expensive employment benefits regardless of size or profitability. Requiring paid time off for all employees of small businesses could be enough to put those struggling businesses out of business.

      ____

      Bloink: State-level initiatives that now mandate paid time off work when an employee gets sick or must care for a sick family member have had positive effects. It’s time to impose a nationwide paid sick leave law to make sure Americans are protected in the face of unexpected illness or injury. We need to face reality in this country—illness and injury don’t discriminate. They can impact any one of us without warning. Workers shouldn’t have to worry about losing their jobs if they or a family member unexpectedly have to deal with an illness. Moreover, this bill is funded through a .20% payroll tax increase—so employers won’t be left to shoulder the burdens alone.

      Byrnes: Paid time off is, of course, beneficial to employees in all lines of work–but this type of relief has to be offered on a case-by-case basis, based on what the employer can actually afford to offer at the time. There have to be strict protections against abuse in place, as well. Federally mandated paid leave might help employees over the short term, but it will do more to hurt the small business owners we should be protecting over the long haul. We’re not only dealing with the cost of paying for the employee’s wages—we’re talking about business owners who need their employees at work to keep the business running.

      ____

      Bloink: Paid leave protections shouldn’t only be available in the face of a global pandemic. An unexpected injury or illness in the family is no less disruptive if it’s specific to the employee. We’ve now seen that nationwide paid leave rules are possible to implement and it’s time that we expanded FFCRA-like protections outside the scope of COVID-19-related reasons.

      Byrnes: 60 days of annual paid leave offers every American employer a two-month paid vacation each year. How will employers prevent abuse? The administrative burdens alone make this proposal completely unworkable.

  • 0112. Warren Wealth Tax

    • Elizabeth Warren has introduced a new piece of legislation that would impose a “wealth tax” on the wealthiest Americans. Candidates began floating details of a wealth tax during the 2020 presidential elections—but the idea has been around for years. Generally, these proposals involve imposing a tax on taxpayers’ accumulated wealth, rather than income or transactions. Warren’s “ultra-millionaire tax” would impose a tax of two percent on the net worth of households and trusts worth between $50 million and $1 billion and three percent on the net worth of households worth over $1 billion. The three percent tax would be increased to six percent if a “Medicare for all” law is eventually passed. The law would also impose a 40 percent excise tax on the net worth of an American who renounced citizenship to avoid the tax.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions on the latest version of a federal wealth tax.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: We all have to agree that it’s high time the super-rich in this country pay their fair share. In the past year, the government has funneled billions of dollars into COVID-19 relief efforts. Many big businesses have profited while small business owners and hardworking Americans have suffered. It’s time those wealthy families pay their fair share. While this wealth tax might not be the ideal way of accomplishing that goal, it serves to highlight the issue amid widespread calls for a more just tax system in this country.

      Byrnes: A wealth tax is never going to become reality in this country—in fact, even President Biden has yet to express support for this particular version. With the Warren proposal, we have to be realistic and recognize that the administrative issues alone make this tax impossible to implement. At the most basic level, how do we evaluate an individual’s worth? We’re talking about adding a 2% annual tax on the net worth of households with more than $50 million in assets and 3% on those with over $1 billion. Are we going into people’s homes to value their artwork and jewelry?

      ____

      Bloink: Increasing income tax rates alone aren’t going to be enough given our current economic realities. The pandemic has cost this nation financially, in addition to the human and emotional toll. While this tax is well-intentioned, it will also likely fail to be sufficient on its own. Rolling back the soon-to-expire TCJA tax cuts on a more wholesale level could serve to raise the revenue this country direly needs—in a way that holds the wealthy liable for their fair share.

      Byrnes: From a policy perspective, this type of wealth tax would punish the very people whose economic investments we so desperately need right now. Warren is talking about punishing people for being successful and working hard if we implement a wealth tax. Now isn’t the time for this type of action.

      ____

      Bloink: We need to take steps toward developing a tax system where big business owners and wealthy families are making decisions based upon sound economic logic–not merely to avoid paying taxes. We’re at a point in this country where we need to focus on getting things done. The pandemic has only highlighted the shortcomings of our current tax regime and the inequities of the 2017 tax reform legislation. We have to take steps to make sure all Americans have access to quality, affordable healthcare, improve our infrastructure, invest in education. To accomplish these goals, we need revenue—while the Warren wealth tax isn’t ideal, we do need to focus on ensuring the super-rich aren’t able to simply skirt all tax liability.

      Byrnes: A wealth tax would give the wealthy in this country a perverse incentive to find new ways to minimize tax liability, whether through trusts, foundations or otherwise. It’s naïve to think these families don’t have the resources to shift ownership of assets to avoid this tax. And the tax itself would alienate a sector of the economy that invests in our small businesses and keeps America running—maybe even resulting in another recession.

  • 0113. Advance Child Tax Credit Payments

    • The child tax credit has taken on newfound importance since the personal exemption was suspended by the 2017 tax reform legislation package. Post-reform, an expanded $2,000 child tax credit is available for tax years beginning after 2017 and before 2026. $1,400 of this per-child credit is refundable. However, taxpayers have to wait to file their returns before they see the benefit of this credit. In the wake of the pandemic, many have called for a system that would provide regular monthly installment payments of at least a portion of the available credit amount. Others have called for less frequent quarterly payments to provide assistance to families faster than the annual system.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about providing regular advance payments of the child tax credit.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The child tax credit provides a powerful benefit for parents who are struggling financially. These families no longer have the benefit of the dependency exemption when it comes time to file their taxes—making the expanded child tax credit critical to many hardworking Americans. This new proposal would provide half of the 2021 tax credit in advance monthly payment installments and half when the taxpayer files a 2021 tax return—getting a sorely needed tax benefit to families who just can’t wait to receive the benefit in a lump sum at tax time.

      Byrnes: Offering advance payments of the child tax credit isn’t something that can or should happen anytime soon. Yes, American families need relief. However, this isn’t something that can happen overnight. From a practical perspective, what we’d be asking the IRS to do would create an administrative nightmare. Rushing something like this through wouldn’t help anyone—even the families who this credit is designed to help the most.

      ____

      Bloink: We’ve already found ways to provide across-the-board relief to business owners in the way of advance tax credits. In other words, we’ve recognized that this type of tax assistance can be most beneficial during difficult times when it’s provided in advance. This would be a way to provide similar help to struggling families who are having trouble with daily expenses like keeping the lights on and putting food on the table.

      Byrnes: The IRS is strained enough as it is. The IT system needed to effectively administer such a widespread program would have to be created from scratch. You’d have to somehow constantly monitor to determine whether taxpayers are even eligible for the credit—rather than verifying eligibility once per year. What happens when an ineligible taxpayer receives the credit? How would we verify whether a taxpayer has had a change in status, so that they might be eligible for a larger and more beneficial credit? These are all questions that have to be answered before we can ever consider a program like this.

      ____

      Bloink: Saying that paying a portion of the child tax credit in advance would be administratively difficult isn’t a satisfactory reason not to try. We managed to make advance payments available for small business owners. We can manage to do the same for struggling American families who are trying to keep their children fed.

      Byrnes: As it stands, the proposal would hold ineligible taxpayers harmless for mistakes if they aren’t actually eligible–meaning that we’d inevitably end up giving money to families who don’t really qualify—and failing to provide the full amount to some families who qualify for more assistance. There are better ways to provide relief to struggling American families. The potential for mistakes is just too strong here.

  • 0114. Social Security Crediting System

    • As the Social Security system currently stands, full retirement age (FRA) falls somewhere between 66 and 67 for most individuals (eventually, FRA will reach 67 for all taxpayers). Taxpayers who claim Social Security once they’ve reached age 62, but before reaching full retirement age, are penalized depending upon exactly how early they claim benefits. Under the formula, benefits are reduced by 6.7% for every 12 months before FRA that benefits are claimed. Payments are increased by 8% per 12 months for individuals who wait until after full retirement age to claim benefits. For individuals with higher life expectancies, waiting to claim benefits can lead to an overall increase in lifetime benefits paid. However, there have been calls to reform this system in order to reduce the reduction in benefits for claiming early, especially in the wake of the COVID-19 pandemic.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about changing the way reduced benefits for claiming Social Security early are calculated.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: The penalty for claiming Social Security benefits early is antiquated and should be revisited, especially in the wake of the pandemic. Many people have been forced into early retirement because of the pandemic–making it much more likely that these taxpayers will claim Social Security early and be permanently punished by the reduction in benefits for claiming early. Additionally, the full retirement age was recently increased to 67 for most taxpayers–making the penalties even more pronounced for anyone who claims benefits at 62 and who will now be penalized for five years’ worth of “early” benefits.

      Byrnes: There are far better ways to reduce inequities and provide assistance to taxpayers forced into early retirement because of the pandemic. With longer life expectancies in modern times, it makes sense that we should encourage taxpayers to work longer if they’re able–and the Social Security penalty for claiming early accomplishes just that.

      ____

      Bloink: We’re talking about a system that was developed back in the 1950s—and one that’s barely been touched along the way. Unfortunately, the detrimental impact of our current Social Security system on the lowest-earning taxpayers is the most pronounced—exactly those individuals who rely on Social Security benefits the most during retirement and exactly those groups that are most likely to have been forced out of work during the pandemic.

      Byrnes: In reality, modernizing the benefit structure itself would be much more useful. For example, we could provide a credit for caregivers who spend time outside of the workforce and are thus penalized with a lower benefit based on reduced earnings over their working lives. Paying for an across-the-board increase in benefits for early claimers would be far more difficult.

      ____

      Bloink: Taking more dramatic steps to modernize the Social Security system as a whole would be beneficial, yes—but probably also unworkable given our current economic and political realities, as well as the instabilities we’re facing in the workplace. Most people file for Social Security benefits below their FRA. Taking the simple step of reducing the penalty would help those individuals now, while we focus on the best way to modernize the system going forward.

      Byrnes: We have to maintain a system where workers have an incentive to keep working to a reasonable retirement age. We have programs to help those who have been displaced from the workplace because of disability. Those who can reasonably keep working until full retirement age should be encouraged to do so, and encouraged to participate in private savings options, as well. Simply offering a full benefit at an earlier age across-the-board isn’t the way to fix the system.

  • 0115. Extending $300 Federal PUA

    • The American Rescue Plan Act (ARPA) extended federal pandemic unemployment assistance (PUA) benefits that provided taxpayers with a supplemental weekly unemployment benefit payment (in addition to state-level benefits). Under the ARPA, taxpayers can continue to receive an additional $300 weekly benefit through September 6, 2021. The federal assistance has also been extended to self-employed taxpayers who would not normally be entitled to state-level unemployment benefits.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about continuing to extend the federal supplemental benefit into 2021, as states focus on reopening their economies.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

      Bloink

      Byrnes

      Their Reasons:

      Bloink: This weekly benefit has kept countless hardworking Americans out of poverty during the pandemic. It’s helped them keep food on the table and prevented the widespread economic collapse that many predicted was inevitable last Spring, when the pandemic first struck. In reality, most families can’t get by on standard weekly unemployment benefits for a long period of time–and we still don’t really know when things will return to normal. Extending this benefit makes complete sense in light of the continued uncertainty that many families continue to face.

      Byrnes: This extra benefit might have been useful in the spring of 2020, when we didn’t know what we were dealing with. We now have a firm enough grasp on the issues. All this across-the-board benefit does is discourage people from returning to work when they’re fully capable of gaining employment. The new reality is that it’s time to get people back to work. The vaccine is working. Sure, not everyone has access yet–but we shouldn’t be expanding unemployment benefits at the exact time when we need to be encouraging a return to work.

      ____

      Bloink: The economy cannot recover if Americans are unable to sustain even their basic cost of living needs. Job opportunities that existed prior to the pandemic simply have not returned across the board—and we don’t know when they will, as uncertainty over the vaccine continues. Business owners who are able to reopen are operating at reduced capacity. Many have no choice but to bring back only a shell workforce—and many workers have a legitimate reason to stay home even as their employers choose to reopen.

      Byrnes: The federal supplement made sense during a time when most businesses were shut down and we were encouraging all Americans to stay home as much as possible. That point has passed, and it’s time to begin directing federal dollars toward return-to-work incentives.

      ____

      Bloink: Return-to-work incentives have their place, but hardworking Americans continue to struggle as unemployment remains at record-high levels. A return-to-work benefit does very little to help when there’s no work to return to—and employees shouldn’t have to choose between protecting their health and earning a living. We also have to remember that some states struggled in implementing this across-the-board supplemental benefit. Asking them to switch over to a new system is not a viable option while a record number of Americans remain out of work.

      Byrnes: We need to give Americans an incentive to return to the workplace, not support financial gain for those who choose to stay home. I’m not suggesting that the federal aid be removed from the picture entirely—just that it be administered on a more selective basis. One solution might be to calculate the unemployment benefit on a case-by-case basis, based upon the employee’s average pay prior to being laid off.

  • 0116. Biden Infrastructure Funding

    • President Biden’s infrastructure proposal, called the American Jobs Plan, includes a plan to fix bridges and roads, eliminate lead pipes to secure clean drinking water and make energy-efficient changes designed to combat climate change. Of course, the plan also comes at a price. Biden has proposed increasing the maximum corporate income tax rate from 21% to 28% to provide funding over a 15-year period to accomplish the proposal’s goals.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about raising the corporate tax rate to fund Biden’s proposed infrastructure improvements.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

       

      Bloink

       

       

       

       

      Byrnes

       

      Their Reasons:

      Bloink: The infrastructure across this country is crumbling. We need to take action to reinforce our roads, bridges and other public infrastructure. It’s also time to take steps to combat climate change by facilitating charging stations for electric vehicles. This has to be paid for in some way and raising the corporate tax rate slightly would both make the tax system as a whole fairer while contributing to the funding we so desperately need.

      Byrnes: It’s relatively ironic that this plan is called the American Jobs Plan. Lowering the tax rate from 35% to 21% wasn’t designed solely to provide a windfall to big business. It was a step that was carefully considered, from a policy perspective, as a way to allow domestic corporations to remain competitive while keeping their operations stateside, rather than simply fleeing to a lower-tax jurisdiction–and taking their jobs with them. Increasing the income tax rate now would be a step in the wrong direction and jeopardize our economic recovery at a time when we desperately need to encourage job growth in this country.

      ____

      Bloink: The largest corporations saw a huge windfall from the 2017 tax reform legislation. Increasing the corporate tax rate from 21% to 28% can provide countless job opportunities as we hire workers to actually complete the work. It’ll also provide the added (and much needed) benefit for every single American: improving the infrastructure for the nation as a whole. And Biden’s infrastructure bill includes rules designed to prevent big corporations from shifting profits to tax haven nations.

      Byrnes: Increasing the corporate tax rate at a time when many businesses are still struggling through the pandemic is the opposite of what we should be doing. It won’t lead to economic improvement–it’ll simply put corporations back in a position of being incentivized to take lucrative projects and jobs abroad.

      ____

      Bloink: Pre-reform, the income tax rate for corporations was 35%. While this will increase the tax burden for many big corporations, the increase also represents a compromise. Corporations will still see tax cuts when compared with pre-reform law. And the overall tax liability of most corporations will still be lower, from a percentage standpoint, than the rates paid by most hardworking Americans. It’s time for corporations to accept that they have to step up and pay their fair share.

      Byrnes: Even if corporations keep jobs stateside with an increased corporate income tax rate, we have to recognize that there will be consequences for hardworking American workers. Corporations will simply pass along the increased liability in two ways: lower paychecks and increased prices on consumer goods. Changing the corporate tax system solely to increase revenue will be counterproductive and will end up hurting the very Americans who we’re trying to help.

  • 0117. Suspending Advance PTC Repayments

    • Under normal circumstances, taxpayers who are eligible for the ACA premium tax credit have two options: (1) they can receive the tax credit when they file their federal income tax for the year or (2) they can receive the payment in advance, paid directly to the insurer, based on anticipated household income for the year in question. Unsurprisingly, most Americans tend to choose option two. When household income turns out to be higher than expected, taxpayers are typically required to repay the amount of any excess premium tax credits. However, for 2020, the American Rescue Plan Act (ARPA) suspended the requirement that taxpayers repay any excess advance premium tax credits for the 2020 tax year. The IRS has announced that it will simply reduce the excess amount to zero and reimburse taxpayers who have already repaid any excess advance premium tax credit on their 2020 tax return.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about suspending repayment obligations for excess premium tax credits for 2020.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

       

      Bloink

       

       

       

       

      Byrnes

       

      Their Reasons:

      Bloink: Taxpayers have been struggling through an unanticipated economic climate in the past year. We have enough to worry about without requiring taxpayers to recalculate and repay amounts that they were given to purchase health insurance during that time. The ARPA expanded the availability of the premium tax credit greatly—but that came too late for taxpayers who purchased exchange coverage in 2020. This essentially applies the relief retroactively to offer assistance during the peak of the pandemic.

      Byrnes: By suspending the requirement that taxpayers repay advance premium tax credits, we’re rewarding a group of taxpayers who have actually ended up earning more than anticipated during the pandemic. Excess advance premium tax credits only have to be repaid when a taxpayer earned too much to qualify for the amount they took throughout the year. This “free gift” makes very little sense when you think about it logically—because we’re technically rewarding a group of taxpayers who have demonstrated an ability to pay for health insurance under the terms of the ACA itself.

      ____

      Bloink: We should be encouraging taxpayers to be proactive and use any available government help so that they can get the comprehensive health coverage they deserve. When we do that, we help the struggling insurance system as a whole, which has disproportionately felt the weight of the pandemic.

      Byrnes: If we want to provide targeted relief to Americans who are struggling financially in the wake of the pandemic, this suspension isn’t the way to do it. Instead of helping the families who have seen their income slashed during 2020, we’re helping those who actually managed to thrive financially.

      ____

      Bloink: Some taxpayers prioritized maintaining health coverage during 2020. We don’t know the situation of every single taxpayer who had an excess premium tax credit—and we’re talking about 2020, when the 100% COBRA assistance subsidy had yet to be passed. It makes absolute sense that we would apply that relief retroactively and help those taxpayers who may have sacrificed other needs in order to keep their families covered.

      Byrnes: The ACA system is flawed as a whole. Despite this, it’s the Democrats who developed and continue to support that flawed system. I’m all for providing quality health coverage to Americans—but this specific provision rewards those taxpayers who were fortunate enough to see their income increase during the pandemic, while we should be focused on offering aid to those struggling to put food on the table.

  • 0118. SALT Relief & Infrastructure Bill

    • The Biden infrastructure bill aims to provide far-reaching benefits—and also contains several tax provisions designed to provide funding to accomplish its goals. However, it does not address the controversial $10,000 cap on the deduction for state and local taxes (the “SALT cap”) that many in Congress have long sought to eliminate. In response, several members of Congress have indicated that they will block the infrastructure proposal if the SALT cap is not repealed.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about members of Congress threatening to block the infrastructure bill if the SALT cap is not also repealed.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

       

      Bloink

       

       

       

       

      Byrnes

       

      Their Reasons:

      Bloink: The SALT cap is patently unfair to millions of Americans who live in high-tax states. Repealing, or scaling back the SALT cap, is a key way that we can help taxpayers who have been hit hard by the COVID-19 virus. We now have a piece of legislation on the table that could be used to accomplish just that—and I don’t blame Democrats in Congress for using that legislation to hold our new administration to their campaign promises.

      Byrnes: This is politics at its worst. Democrats are using the infrastructure bill as a way to sneak a SALT cap repeal past the American people. I’m surprised anyone reasonable in Congress is even pushing for this in light of the limits that have been placed on stimulus payments for those with even moderate-income levels. We’re already looking at a proposed law that would hurt the businesses that we should be trying to support—using those corporate tax hikes to support a tax cut for a group of wealthy Americans seems counterproductive.

      ____

      Bloink: With the entire country emerging from a crisis, this is no time to single out taxpayers in high-tax states for a tax penalty. This is relief that should have come some time ago, and it is one small way we can help states that have struggled the most. This might look like a political maneuver, but in reality, it’s a move that seeks to hold our current president to his campaign promises. The SALT cap has been unpopular among both Republicans and Democrats in high-tax states and painting this as a Democrat-only issue is simply misleading.

      Byrnes: Eliminating the SALT cap would reduce federal revenue streams by billions–an estimated $600 billion to be precise. It would also favor taxpayers who live in high-tax states at the expense of others who need help just as badly during these times. These members of Congress are trying to manipulate the system so that taxes on one group of discrete individuals are reduced in favor of increasing corporate tax rates that impact the entire economy and motivate corporations to create the jobs that we so desperately need.

      ____

      Bloink: The SALT cap is an economic penalty that singles out taxpayers in high-tax states and applies to the middle class as well as the rich. Repealing the SALT cap only within certain AGI bands is another option, but also adds a layer of complexity for taxpayers already struggling to determine which relief they might receive.

      Byrnes: Democrats like to raise the inequality issue when arguing for repeal of the SALT cap. Looking at it logically, however, the SALT cap actually introduces more equality into the federal tax code. Eliminating the SALT cap right now offers relief to taxpayers based solely on where they live—favoring taxpayers who live in high-tax states at the expense of others who need help just as badly—it not more so—during these times.

  • 0119. Biden Book Income Tax Plan

    • As part of an over-arching initiative to fund the new administration’s infrastructure plan, President Biden has proposed imposing a 15% minimum tax on the book income of certain large corporations. While the specific details remain unknown, the new tax would seek to ensure that large corporations are unable to exploit loopholes in the tax code. “Book income” is the income that these corporations report on their financial statements, which typically differs from taxable income. However, based on the most recent details, the tax would only apply to corporations with book income of at least $2 billion—which is about 180 corporations. The tax would function as a sort of alternative minimum tax—corporations would figure both their regular income tax liability and compare that to the 15% tax on book income. The corporation would then pay the higher amount.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about President Biden’s plan to impose a minimum tax on the book income of certain larger corporations.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

       

      Bloink

       

       

       

       

      Byrnes

       

      Their Reasons:

      Bloink: Corporations will never stop looking for ways to manipulate their taxable income. We need to find a way to make sure that corporations are paying their fair share despite efforts to use legitimate tax code provisions to pay less federal income tax. Subjecting the largest corporations with the strongest resources for manipulating the tax code to a mandatory minimum tax on their book income can accomplish this.

      Byrnes: Taxable income is often much lower than book income for a reason: the tax code permits it. There’s nothing wrong with using deductions and exemptions in the tax code to minimize taxable income. It’s entirely unfair to later decide to punish corporate taxpayers for using the law as it’s been designed by Congress–to minimize taxable income–by looking at a number that’s totally unrelated to the tax code. This just gives businesses conflicting incentives and introduces more complexity into their tax planning.

      ____

      Bloink: We desperately need the revenue to fund Biden’s new infrastructure plan and make up for the unprecedented tax losses experienced because of the pandemic in 2020 and 2021. Corporations want to make their book income, as reported on financial statements, as high as possible because that’s what keeps shareholders happy. Imposing a corporate AMT based on actual corporate profits might be the only way to hold big corporations accountable for paying their fair share.

      Byrnes: Linking book income to taxable income would be an administrative nightmare. Book income and tax income are completely different concepts, so while it might seem like a simple enough proposal, this would be incredibly difficult to implement and would undoubtedly hinder business and economic growth. If anything, taxing book income would give companies an incentive to reduce their book income, resulting in a system where we’re giving less useful information to investors.

      ____

      Bloink: The administrative burden associated with this type of tax is significantly reduced by the fact that the minimum tax would only apply to the very largest corporations—those with the resources to make the calculations necessary under the law. We’re not talking about raising the corporate tax rate for small business owners who would struggle with the change. We might not have all the details, but that doesn’t mean they won’t be forthcoming.

      Byrnes: Think about the difficulties here. Take depreciation alone—with book income, depreciation expenses are usually evenly spread among the life of the asset. The tax code currently permits accelerated expensing for most business assets. How do we fix disparities like this? There are countless others and Biden’s plan says little about how the issue will be addressed. If there’s a problem with the tax code, it should be addressed by changing the tax code.

  • 0120. Eliminating Stepped-Up Basis

    • President Biden’s American Families Plan proposes changing the tax rules that currently allow a “step up” in basis for inherited assets. Currently, when taxpayers inherit assets that have appreciated in value over the years, the person who inherits the property is allowed to increase the asset’s basis to the fair market value of the property at the date of the owner’s death. Generally, the law allows the inheritor to immediately sell the property without any capital gains liability. Biden’s proposal would substantially limit the availability of the step-up in basis for most wealthy families.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the proposed changes to the stepped-up basis rules.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

       

      Bloink

       

       

       

       

      Byrnes

       

      Their Reasons:

      Bloink: Ending the step-up in basis would close a major loophole that really only benefits very wealthy families who have the means to hold onto appreciating assets for years—only to pass them down to future generations with little-to-no tax liability. The step-up allows the rich yet another way to avoid paying their fair share of taxes by eliminating taxes on even transfers of capital assets.

      Byrnes: Eliminating the step-up in basis would be devastating for this country’s struggling economy. Studies show that it would drastically cut the number of jobs available for hardworking Americans each year and actually cause a $10 billion decrease in the GDP each year. Simply put, it would do more harm than good and would generally punish Americans whose families have worked hard to provide a legacy for future generations.

      ____

      Bloink: Current proposals for eliminating the step-up in basis are really only proposals to limit the availability of the loophole. In reality, the proposals would exempt some assets–perhaps up to $1 million per individual–from the new rule, so that the middle class would not be harmed by otherwise eliminating the stepped-up basis rules. The tax revenue would be used to fund paid leave, childcare and education–areas that are in desperate need of funding because the super-rich in this country have so many options for avoiding paying their fair share.

      Byrnes: This is a tax hike that would make investment in the economy more expensive for the business owners who keep America running. It would seriously hurt farmers, ranchers and others who pass family businesses on to the next generation. Even worse? It would result in a situation where these assets are subject to double taxation if those same assets are subject to the estate tax and the capital gains tax–not to mention the administrative nightmare for taxpayers who would have to determine the original cost basis of these assets upon inheritance.

      ____

      Bloink: Biden’s proposal also plans to exempt family farms and small family businesses—meaning that as long as the heir continues to run the business, they should be able to continue benefitting from the stepped-up basis rules. The proposed rules are only meant to prevent situations where immense wealth is passed from generation to generation without any tax liability—giving wealthy heirs yet another opportunity to sell valuable assets without paying their fair share of capital gains tax.

      Byrnes: The odds of this plan passing are slim to none. The fact is, even some Democrats oppose Biden’s large-scale tax hike plan—and moderate Republicans will never support eliminating the stepped-up basis rules, let alone his proposed capital gains tax hikes that would magnify the negative impact of the changes.

  • 0121. Carried Interest Proposal

    • The carried interest rules are a set of tax rules that offer favorable tax treatment when a partnership interest is received in exchange for future services to the partnership. In lieu of cash compensation, the services entitle the individual to receive a share of future partnership profits. Instead of being taxed for compensation at ordinary income tax rates, recipients of future partnership profits are usually entitled to pay tax at the long-term capital gains tax rates, which, of course, are substantially lower than ordinary income tax rates. Under the 2017 tax reform legislation, a three-year holding period requirement applies to certain recipients in order to gain long-term capital gains treatment. President Biden is now proposing to permanently eliminate these carried interest tax rules so that recipients would be required to pay ordinary income tax rates on amounts received.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about eliminating the current beneficial tax treatment under the carried interest rules.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

      Bloink

       

       

       

       

      Byrnes

       

       

      Their Reasons:

      Bloink: The carried interest rules are yet another tax loophole to allow wealthy private equity and hedge fund managers to avoid paying their fair share of income taxes. This is a change that should have been implemented years ago and it’s about time we started focusing on the nitty-gritty ways wealthy taxpayers manage to avoid almost all tax liability.

      Byrnes: It makes complete sense that carried interests should be treated as capital gains income–because these benefits are most similar to investment income or a return on goodwill. Biden’s already calling for a long-term capital gains tax rate hike that would cause rates to skyrocket to 39.6%–higher than the current top ordinary income tax rate. Focusing on the carried interest rules is really just a backstop, in case he’s unable to pass the capital gains tax hikes he has in mind.

      ____

      Bloink: Eliminating the carried interest rules would require wealthy taxpayers who typically are able to game the system to pay ordinary income taxes on their compensation just like all the other hardworking Americans who don’t have the resources to benefit from these complex rules. If we’re looking for ways to increase revenue while limiting tax hikes on the middle class, this is a prime way to get where we need to go.

      Byrnes: We’ve already limited the carried interest “loophole” by imposing a three-year holding period requirement in order to gain long-term capital gains qualification (even longer than the traditionally applicable one-year holding period requirement). Bottom line? Eliminating the carried interest rules would give taxpayers a disincentive to remain invested in businesses that keep this economy moving.

      ____

      Bloink: All of the economic stimulus efforts that we’ve implemented over the past year or so are paying off. However, the reality is that we have to fund those efforts somehow. If we’re talking about job creation and economic growth, eliminating the carried interest rules in favor of actually encouraging investment in our infrastructure is the way to go. We’ll be creating jobs while also investing in education, rebuilding public roads and transportation systems.

      Byrnes: We’re at a turning point right now. With hopes high that vaccine efforts will pay off, we need to be looking toward the future—and that means encouraging investment in our economy and the businesses that keep it running. Eliminating this valuable tax benefit at this moment in time would be a step in the wrong direction and could substantially hamper our economic recovery.

  • 0122. Advance Credit Payment Process

    • Beginning in 2021, employers are no longer obligated to offer paid leave to employees for COVID-19-related reasons. However, employers who voluntarily provide paid leave can continue to claim a tax credit for wages paid under the ARPA. The credits are refundable in advance, meaning employers can simply keep the taxes that they otherwise would have deposited with the IRS, including federal income tax withheld from employees, Social Security taxes and Medicare taxes up to the amount of the credit. If the employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the employer may claim an advance payment of the credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19, rather than waiting to file a return for the tax year.

      As it turns out, reports have emerged indicating that the processing time on Form 7200 can be weeks from the date the employer submits the form to the IRS for repayment.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the IRS’ process for paying advance credits is adequate.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

       

      Byrnes

       

       

       

      Bloink

       

      Their Reasons:

      Byrnes: Businesses across the board are opting to allow employees to take paid sick leave for vaccines, vaccine recovery time and, of course, COVID-19 recovery time. It’s understandable that the IRS would need time to process Form 7200 requests for advance payment of the employer tax credits for the paid leave. We have to assume that the IRS is doing its best to process the forms as quickly as possible given the circumstances.

      Bloink: By this time, the IRS shouldn’t be taking weeks to process a request for advance payment of these tax credits—which have existed for over a year. Business owners want to do what they can to help employees. However, some of these businesses are barely scraping by at this point. How can they afford to float paid leave to employees–while still paying those employees who are coming into work–for weeks at a time?

      ____

      Byrnes: Employers have the option of retaining their employment tax deposits to cover at least a portion of the paid wages–which offers relief while the IRS processes additional requests for hundreds, if not thousands, of businesses.

      Bloink: It’s up to the IRS to devise a system that makes these paid leave tax credits workable for struggling business owners—or risk the possibility that employers will have no choice but to stop offering paid leave. Without a system to offer quick relief to employers, employees could soon begin to experience the trickle-down impact—perhaps having to use vacation time to recover from an adverse vaccine reaction or worse, go without pay entirely.

      ____

      Byrnes: With tax filing season just now drawing to a close, it’s not surprising that the IRS is running behind schedule in processing Forms 7200. Of course, the IRS could take steps to reassure business owners that they will, in fact, receive their advance tax credits within a certain time frame—but I don’t think a few weeks is an unreasonable delay, especially now that most businesses can resume operations with minimal restrictions.

      Bloink: Paying these struggling business owners should be a priority if we’re focused on reopening the economy and helping Americans return to some level of normalcy. The IRS has the authority to delay tax filing season. We filed in June 2020 with little publicized impact. If the IRS is backlogged, which would be understandable, they have the authority to offer themselves relief by delaying the filing deadline and making it a priority to process these important tax credit payments first.

  • 0123. SECURE Act 2.0 - Raising RMD Age

    • The next round of retirement-related changes, dubbed the SECURE Act 2.0, would once again modify the age at which retirement savers must begin withdrawing funds from traditional retirement accounts. Once taxpayers reach the required beginning date, they must begin taking annual withdrawals from retirement savings accounts funded with pre-tax dollars (including IRAs and 401(k)s). The original SECURE Act raised the required beginning date from age 70.5 to age 72. If it becomes law, the SECURE Act 2.0 proposes to raise the required minimum distribution (RMD) age to 73 in 2022, 74 in 2029 and 75 in 2032.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the new increase.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

       

      Byrnes

       

       

       

       

      Bloink

       

      Their Reasons:

      Byrnes: Taxpayers are living longer and should be able to reap the benefits of allowing their retirement funds to grow tax-deferred for a long period of time. This proposal will allow taxpayers to build larger IRA balances and is just good sense now that more older Americans continue to work past the current RMD age—especially in the wake of a pandemic that wreaked havoc on many taxpayers’ savings accounts.

      Bloink: In reality, if enacted, this rule would only make things more confusing for taxpayers when it comes down to taking RMDs. At this point in time, there’s very little benefit to making this change. If Congress wanted to simplify the rules and give taxpayers an added benefit, they should eliminate RMDs altogether. Raising the RMD age only helps the wealthy avoid taxes during life—because they don’t need their retirement savings to cover living expenses.

      ____

      Byrnes: There’s no reason older Americans should be punished just because they reach age 72. Taxpayers should be entitled to do whatever they want with their hard-earned retirement funds. Once the individual turns 70, Social Security benefits kick in, so the reality is that many taxpayers have enough income even if they are working in some reduced capacity. I don’t see this as a ploy to benefit the rich at all—wealthy taxpayers aren’t going to derive significant benefit from another three years of tax-deferred growth. This only gives taxpayers the option of letting their savings grow while they continue to work.

      Bloink: To an extent, yes. The issue here is that the original SECURE Act made the RMD rules a bit obsolete across-the-board, regardless of income level. The point of the RMD rules was to make sure retirement accounts aren’t used as estate planning vehicles. Now, most beneficiaries have to empty the account within a 10-year period anyway. So the argument for the existence of RMDs in the first place is significantly weaker today.

      ____

      Byrnes: The RMD calculation continues to serve a purpose—if nothing else, the taxpayer’s required distribution gives the individual a sense of how much they should be withdrawing based on their specific account balance. Taxpayers still have the option of taking the funds sooner if they need the money, without worrying about any type of penalty.

      Bloink: If we’re thinking about raising the RMD age to 75, we might as well eliminate the rules entirely. Savers who need the money will take their annual distributions regardless of whether they’re strictly required to by law. Raising the RMD age won’t do anything to help these hardworking Americans who have no choice but to withdraw the funds to cover their living expenses. The RMD rules really only existed to stop wealthy taxpayers from using tax-preferred retirement accounts to avoid paying taxes on retirement savings during their lifetime.

  • 0124. State COVID Liability Shield Laws

    • While any type of federal liability shield for COVID-19-related lawsuits has been put on the back burner since the Biden administration took control of the White House, state-level initiatives have continued to progress. Liability shield laws generally make it more difficult for plaintiffs to recover damages in lawsuits connected to the COVID-19 pandemic. In some cases, the shield laws make it difficult for plaintiffs to file a lawsuit at all. To date, no state has passed a law providing complete immunity to businesses and other entities. However, several states have passed limiting laws.

      South Dakota, for example, requires the plaintiff to prove that the business intentionally exposed the individual to COVID-19. The laws in states like Tennessee are more typical, and generally require the plaintiff to prove by clear and convincing evidence that the business’ acts or omissions (1) caused the COVID-19-related injury and (2) amounted to gross negligence or willful misconduct.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about state-level liability shield laws.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

       

      Byrnes

       

       

       

       

      Bloink

       

      Their Reasons:

      Byrnes: We’re at the point of reopening nationwide at this point. Employers can’t effectively operate their businesses if they constantly have to worry about being sued because someone visits their business and then gets sick. These limiting laws are both necessary and effective.

      Bloink: Business owners have a huge influence over their employees and are often the only party with the authority to put safety measures into place. Many Americans don’t have the choice to stay home. They need income. They’re faced with the choice of returning to work and jeopardizing their health or staying home and struggling to put food on the table for their families. Employers have a duty to provide a safe environment for everyone and limiting liability gives them carte blanche to be careless with people’s health.

      ____

      Byrnes: It’s extremely difficult for someone to pinpoint exactly where they contracted COVID-19. Allowing a cause of action that shifts blame to someone else gives people an incentive to go looking for deep pockets—and just shifts financial liability to someone who’s equally blameless. The economic market is challenging enough right now, business owners should at least be secure in not having to worry about legal action—especially when all adults now have the vaccine option.

      Bloink: This virus is not over just because people have started getting vaccinated. It’s the lowest-income workers who are least likely to have vaccine access. Requiring employees to return to an unsafe work environment—and exposing customers to that unsafe environment—should be considered gross negligence on the part of the employer. We’ve seen the damage caused by this virus on a worldwide scale. There isn’t a business owner out there who lacks knowledge of the steps that can keep others safe.

      ____

      Byrnes: These state-level liability shields don’t entirely eliminate the ability of people harmed by COVID-19 to take legal action. They just raise the bar to prevent frivolous lawsuits. States are on the right track here—allowing limitless “personal injury” type lawsuits based on contracting COVID-19 would not only weigh down the courts, but it would pose a huge detriment to business owners struggling to reopen, creating an especially heavy burden for the smallest business owners.

      Bloink: Requiring plaintiffs to prove intentional exposure or gross negligence as a baseline for taking legal action is tantamount to a complete ban on liability. We all know that these are extremely high standards even in your typical injury case. COVID-19 claims become even more complex. Many states let business owners off the hook by not even enforcing state-mandated COVID precautions during the height of the pandemic. Providing liability shields now is a slap in the face for ordinary Americans who were hurt as a result of the intentional acts of certain businesses.

  • 0125. Repeal of Step-Up Basis - Immediate Tax

    • President Biden has now released more detailed information about various facets of his ambitious tax plan. Under current rules, taxpayers who inherit property benefit from a step-up in basis at the time of the original owner’s death—meaning that the basis of inherited assets is “stepped up” to the fair market value of the property on the date of the owner’s death. Biden’s original tax plan proposed repealing the basis step-up going forward. In a surprise twist, however, Biden’s plan would not only repeal the stepped-up basis, but taxpayers who inherit property would be required to recognize gain at the time of death. In other words, inheriting property that had appreciated would be a taxable event even if the individual does not immediately sell the inherited property.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about this new twist on the proposal to repeal the stepped-up basis rules.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

      Bloink

       

       

       

       

      Byrnes

       

       

      Their Reasons:

      Bloink: Repealing the stepped-up basis rules is only the first step toward requiring wealthy Americans to pay their fair share on asset transfers. The richest Americans can avoid any tax liability even with the repeal—simply by hanging onto the assets and hoping for a more favorable future tax regime. Requiring these taxpayers to recognize gain once they actually receive the asset, regardless of whether they sell, ensures that taxpayers are paying at least a portion of their fair tax liability based on overall wealth.

      Byrnes: Requiring all beneficiaries to immediately recognize gain on asset transfers at death is completely unworkable—and patently unfair. It creates a system of double taxation, something that our tax code generally doesn’t tolerate. Assuming the deceased person’s estate is subject to the estate tax, which Biden also plans to increase, the property could be immediately subject to both the estate tax and income or capital gains tax.

      ____

      Bloink: We’re talking about the richest Americans who can game the system and avoid paying what’s fair—not ordinary taxpayers who transfer only modest assets. Double taxation would only prove to be an issue for the wealthiest Americans who have held onto assets, sometimes for generations, without paying any taxes at all. In fact, the current proposal exempts $1 million in asset transfers for each individual decedents from the new recognition rule.

      Byrnes: More and more taxpayers will likely be exposed to the estate tax if Biden gets his way—and then they’re also forced to pay income/capital gains taxes to boot? That forces taxpayers into selling assets that they might not otherwise want to sell. How would they have the funds to pay the tax liability without selling the asset and actually benefiting from the appreciation in value?

      ____

      Bloink: We all know that if this rule becomes law, middle-class Americans who transfer only modest assets at death will be exempt. Our government isn’t trying to bankrupt ordinary Americans who’ve done nothing but inherit property from loved ones. The modifications are designed to capture those significant assets that the wealthy pass from generation to generation, using tax minimization strategies to avoid paying their fair share.

      Byrnes: At the bottom line, the proposed system would be completely unworkable from a practical, administrative standpoint. We’d be talking about a system where each and every asset that’s ever transferred at death would have to be valued and taxed even if the heir isn’t planning to dispose of the property. This new rule would spell a death knell for the family business and family farm once beneficiaries learn that they can’t afford to both keep the business running and pay Uncle Sam at the same time.

  • 0126. Gas Tax Increase

    • Negotiations over the Biden administration’s latest round of tax increases quickly stalled in Congress. However, a bipartisan group of senators initiated a new funding strategy—tying the federal gas tax to inflation to help pay for the $1 trillion infrastructure proposal. The current gas tax is set at 18.4 cents per gallon (24.4 cents for diesel fuel) and has not been modified since the early 1990s. The revenue from the gas tax is allocated to highways and transit.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about indexing the gas tax to inflation to fund infrastructure projects.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

      Byrnes

       

       

       

       

      Bloink

       

       

      Their Reasons:

      Byrnes: Indexing the gas tax to inflation is one key way that we can fund the infrastructure investments that this country so sorely needs without the dramatic and unfair tax hikes that President Biden has proposed. The gas tax hasn’t been modified in nearly three decades. Much has changed in that time when it comes to transportation. It’s time that the gas tax changed to keep up with the times—and this proposal simply means that the gas tax would increase along with the general cost of living.

      Bloink: This is a disguised tax hike for lower- and middle-income taxpayers. One of Biden’s key campaign promises was that the middle class–anyone earning less than $400,000 annually–wouldn’t see any type of tax hikes. That aside, indexing the gas tax to inflation would barely make a dent in the amounts that we need to fix this country’s infrastructure—and keep it in a safe condition for the future. It’s time to scrap this proposal and move on.

      ____

      Byrnes: In the past 30 years, cars have become significantly more efficient. That means taxpayers are spending less on gas generally. Of course, that means that the government receives less revenue to spend on highways, bridges and other transit systems. If the entire point of this bill is to invest in our crumbling infrastructure, shouldn’t the taxpayers who use that infrastructure the most foot at least part of the bill?

      Bloink: Republicans in Congress have proposed this tax hike to avoid increasing taxes on the super-wealthy who, of course, are those Americans who can most easily afford to pay more in taxes. It’s just another way to avoid making these ultra-wealthy Americans pay their fair share and instead shifting the burden to those taxpayers who can ill afford an increase.

      ____

      Byrnes: A key element of the latest Biden infrastructure plan involves investing in green energy initiatives, right? So, it stands to reason that a slight increase in the gas tax could even work to provide an even greater incentive for taxpayers to pursue greener alternatives and reduce carbon emissions. It’s a logical compromise tax increase that most taxpayers will barely feel.

      Bloink: This tax hike isn’t going to scratch the surface. Studies show that the increases might bring in an extra $2 billion in revenue per year—most of which would be paid for by ordinary Americans. That’s not nearly enough to fund a $1 trillion spending package. The tax would have to be more than doubled to even fund a proposal that’s about 50% as ambitious as the Biden plan. This disguised tax hike isn’t going to happen, so it’s time to start looking at the more realistic and workable options that have already been proposed by the Biden administration.

  • 0127. New ACA Challenge

    • Now that the latest challenge to the constitutionality of the Affordable Care Act (ACA) is behind us, yet another lawsuit has been filed to challenge the health care law. The next lawsuit, also filed in Texas, challenges the ACA’s zero-dollar coverage for preventative services–including things like mammograms, vaccines, HIV preventative drugs, contraceptives and other preventative services. Under the ACA, insurance companies are required to provide coverage for those types of services without charging deductibles or co-payments. The lawsuit cites a number of problems with this rule, including violations of constitutionally protected religious freedoms.

      We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the latest ACA challenge and its merits.

      Below is a summary of the debate that ensued between the two professors.

      Their Votes:

       

       

      Byrnes

       

       

       

       

      Bloink

       

       

      Their Reasons:

      Byrnes: Essentially, the law as it stands requires anyone who purchases health insurance to subsidize the use of contraceptives, vaccines and other zero-cost services provided by the insurance company as mandated by the ACA. This is a religious freedom issue and is one that’s much more likely to succeed than the last constitutional challenge involving the individual mandate.

      Bloink: This is yet another Republican-led witch hunt against the ACA. Preventative care is essential to the health and well-being of Americans at all income levels. It’s also essential to controlling the cost of health insurance in this country. The ACA preventive care mandate is critical to controlling the cost of health insurance for all Americans and should be left intact.

      ____

      Byrnes: This isn’t a challenge to the entire law. It’s a discrete portion of the law that must be changed in order to comply with the basic terms of our constitution. Because the terms of the ACA require insurance companies to provide these preventative services at zero cost to the insured, policies that exclude this coverage don’t exist. While preventative care is of course valuable, this case has a much greater chance of success because taxpayers should be able to make their own choices and the letter of the law precludes that.

      Bloink: If insurance companies have the choice between providing free preventive services and charging for those services, they’re going to charge. That’s just the nature of a profit-driven business. That means lower-income Americans likely won’t have access to those services, widening the gap between the haves and the have-nots in this country.

      ____

      Byrnes: The people charged with determining the types of services and benefits that will be provided at no cost have no authority to make those decisions. These aren’t members of Congress or people who have been appointed and confirmed by the Senate. Instead, they’re medical professionals. That might make sense on the face of things, but we’re talking about determining the contours of a federal law. Whatever anyone’s personal beliefs, that law must be administered in accordance with the U.S. constitution.

      Bloink: We know what will happen if this provision of the ACA is overturned. Millions of Americans would elect to forgo preventative services because they can’t afford them. That means those people will end up with worse medical problems and require much more expensive medical treatment in the long run—and that’s something that all Americans who purchase health insurance should be worried about, because the insurance companies won’t absorb those costs. They’ll be passed on to everyone else who pays for health insurance instead.