Big Increase in High AGI Returns: The number of income tax returns reporting adjusted gross income of $200,000 or more increased 16.5 percent from 1998 to 1999, according to the latest issue of the Statistics of Income Bulletin.
The Spring 2002 issue, released by the Internal Revenue Service, also includes articles on S corporation returns, a reconciliation of pretax corporate income reflected on financial statements with that reflected on corporate income tax returns, and a review of federal estate tax returns filed for estates of 1999 decedents.
There were 2.43 million individual income tax returns reporting AGI of $200,000 or more for 1999. While the total number of tax returns increased by 1.8 percent over 1998, the number of high AGI returns increased by 16.5 percent.
S corporation returns, which represent 55.2 percent of all corporations, increased by 5.3 percent for 1999 over the previous year. The number of S corporation shareholders also increased to nearly 5.1 million, up by 4.9 percent. For Tax Year 1999, S corporation total assets increased by 11.9 percent from $1.5 trillion in 1998 to $1.6 trillion in 1999. Total net income (less deficit) increased by 6.6 percent to $193.8 billion.
Researchers explored the reconciliation between corporation book and tax net income for 1996 through 1998, using amounts derived according to generally accepted accounting principles and Internal Revenue Code rules. For 1996, the difference between pretax financial reporting income (pretax book income) and tax net income was $92.5 billion, representing 14.0 percent of tax net income. For 1998, the difference increased to $159.0 billion, representing 24.2 percent of tax net income.
Major Tax Bill Introduced: Congressman Rob Portman, R-Ohio, a member of the House Ways and Means Committee, has introduced the Tax Simplification Act of 2002. The proposed legislation contains numerous measures intended to drastically simplify the tax code.
The bill would simplify taxes for both families and businesses, and clarify some of the code’s most confusing provisions. For example, the current tax code has five different definitions of a "qualifying child" and nine different definitions of "qualifying higher education expenses." The Portman bill would create one uniform definition of each concept.
The bill would eliminate the alternative minimum tax, and would simplify capital gains calculations by adopting a uniform percentage deduction in lieu of multiple tax rates. It would also create a "small savers" exemption that would exempt the first $500 of dividend or interest income. This will keep many taxpayers who save just a small amount each year from having to itemize.
Saxton Proposes IRA Relief For Seniors: Chairman Jim Saxton of the Joint Economic Committee welcomed improved prospects for legislation ending tax discrimination against senior investors, under consideration by Congress later this year.
Saxton is the sponsor of H.R. 1368, a bill that would end mandatory withdrawals from individual retirement arrangements by seniors after age 701Ú2, a provision of the current tax law that was designed to force income tax payments on these withdrawals. Seniors could roll over 401(k) assets into IRAs to receive the same tax benefit.
Mandatory withdrawals force tax payments that significantly erode the wealth of seniors, according to Saxton. "Moreover," he said, "with longer life expectancies and many seniors working later in life, the 70-1Ú2 age trigger is unrealistically low. Many seniors have barely retired before being hit with stiff tax payments on withdrawals they do not want to make. This simply is age discrimination against senior savers."
Saxton added, "Seniors have saved for retirement, not to trigger premature, heavy tax payments at an arbitrary age."
Pol: Tax Complexity And Compliance Closely Linked: The tax system will need to face the critical issues of tax complexity and tax compliance in the coming years, according to Pam Olson, deputy assistant secretary of the Treasury for tax policy.
In testimony before the Senate Finance Committee for her nomination to assistant secretary, Olson said the two issues are closely linked. According to Olson, "complexity burdens the economy, hinders tax administration, leads to unintended results, feeds the proliferation of tax shelters and weakens our self-assessment system."
Olson praised the restructuring of the IRS, noting that while painful even to the outside observer of the organization, the fruits of that change will be seen in the years ahead in the form of increased taxpayer service and better-focused compliance programs.
There is much to be done on the compliance front, Olson told the panel. "The belief that the tax laws bestow on certain taxpayers opportunities to minimize their taxes has a corrosive effect on our tax system. It leads taxpayers to question its fairness. The complexity in our tax laws and the many targeted provisions contribute to taxpayers’ concerns that somebody got something they didn’t but should have."
