The American Institute of CPAs has sent a letter recommending various tax reform priorities to the new chairman of the tax-writing House Ways and Means Committee, Rep. Paul Ryan, R-Wis.
The letter, which Troy Lewis, chair of the AICPA’s Tax Executive Committee, sent to the former vice presidential candidate Monday, along with several other congressional leaders and officials at the Treasury Department and the Internal Revenue Service, provides comments on the Tax Reform Act of 2014, a draft proposal developed in the previous congressional term by former Ways and Means Committee Chairman Dave Camp, R-Mich. The areas on which the Institute commented represent issues that the AICPA said are important to its members, based on how well they meet the AICPA’s 10 principles of good tax policy.
The AICPA’s recommendations included a simplified income tax rate structure without any surtaxes or phase-outs for taxable income. “The use of phase-outs— in order to increase the effective tax rate— has contributed to the complexity and opaqueness of the present tax law and this proposal,” Lewis wrote. “Phase-outs also unfairly create marginal rates in excess of the statutory rate. We are concerned that provisions to limit or eliminate the use of certain deductions and exclusions in the application of the top tax bracket will exacerbate these flaws. We urge Congress to use tax reform as an opportunity to develop the best definition of taxable income by creating a simple, transparent, possibly higher tax rate schedule that does not include hidden additional taxes and is applied consistently across all rate brackets. We also propose, as part of comprehensive tax reform, the complete removal of all phase-outs as these limitations serve as additional complexities for taxpayer compliance.”
The AICPA said it also opposes a provision in the tax reform proposal to offer the tax preference on retirement plan contributions to only those taxpayers in the new 25 percent tax bracket.
“By placing a 25 percent cap on the deductibility of retirement plan contributions, the newly created 10 percent surtax on retirement contributions made to employees in the 35 percent tax bracket effectively taxes these higher income employees twice—once when contributions are made to the plan, and then again when the money is distributed upon retirement (or in the case of Roth individual retirement accounts), taxed when earned).”
The AICPA noted that for small businesses owners, this provision could prove to be especially troubling. If the business were subject to the 10 percent surtax, it could decide to eliminate its workplace retirement plan, and this procedure would have “an undesirable trickle-down effect onto their employees, who would no longer have a workplace retirement plan, resulting in a significant reduction in the retirement savings of lower and middle class employees, who need to increase their retirement savings.”
The AICPA also provided recommendations on a host of other areas, including simplification of education incentives, charitable contributions, self-employment earnings and business tax reforms. The Institute said it plans to submit further comments on additional issues in the future.
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