Ernie Neve, CPA
March 21, 2018
Back in 1985, a group of ambitious lawmakers set out to reform the federal income tax code. House Ways & Means Chair Dan Rostenkowski introduced the legislation. (This was before he became inmate #25338-016 at the Oxford Federal Correctional Institution.) Congress held dozens of hearings, cast 29 roll call votes, and debated 111 amendments on philosophical questions like Dan Quayle's proposal "to provide that the period during which an individual is in the United States competing in a charitable sporting event shall not be taken into account in determining whether such individual is a resident alien."
Ten months and 18 days later, President Reagan signed the Tax Reform Act of 1986 into law. Two years after that, Congress passed a "technical corrections" bill to fix hundreds of drafting errors that made it into the final text.
Fast forward to 2017. Technology and the internet have made everything faster, right? That includes legislation, of course. On November 2nd, House Ways & Means Chair Kevin Brady introduced the Tax Cuts and Jobs Act. There were zero hearings, handwritten amendments in the middle of the night, and a quick "never mind" when Senators realized they had accidentally killed the Research & Development credit.
On December 22 — just 50 days later — the President signed the bill into law. That's less time than it usually takes to rename a post office after a local school board member. Now those lawmakers may be rediscovering something their grandmothers told them back when they were little: namely, "marry in haste, repent in leisure." It turns out Congress may have skipped ahead to the bottom of their homework a little too quick, and made a teensy-weensy boo-boo or two along the way.
The cut in the top corporate tax rate, from 35% to 21%, happened to give big grain producers like Archer Daniels Midland a big advantage over smaller farmers. So a couple of agriculture-state senators tried to level the playing field by giving producers who sell to co-ops the same 20% "qualified business income" deduction as other pass-through businesses. Unfortunately, they let those farmers deduct 20% of their gross saleswhen they wanted to let them deduct 20% of their taxable income. Big difference. Can Congress pass a fix?
Lawmakers wanted to give restaurant owners and retailers a tasty break for renovation expenses by letting them deduct so-called "leasehold improvements" over 15 years. Instead, they made it 39 years. Restaurant lobbyists understand this was an honest mistake, like overcooking a steak. But, same as you can't UN-cook an overdone slab of beef, there's no easy "do-over" to fix the problem short of amending the actual law.
Even the giant multinational corporations you would expect to applaud the new lower rates are howling over "base erosion" rules, intended to stop them from playing games by shifting profits offshore to avoid taxes here. (Trust us, you don't want to know the details.) It's hyper-technical stuff, but there are big dollars at stake. Can you even imagine how many lawyers will buy new Jaguars with the money they bill for "taxsplaining" what Congress really meant in court?
Drafting errors and "technical" corrections certainly make tax planning harder. But they don't make it any less important. We can't let the perfect be the enemy of the good. So call us when you're tired of wasting money on taxes you don't have to pay, and let's see if we can show Congress how to do it right.