Fun and Taxes

The tax legislation being hurried through Congress is serious business. Still, haste sometimes makes humor.

Reinventing the bubble that killed the 1986 tax reform
Back in '86, last-minute tinkering increased the nominal top income-tax rate from 28% to 33%. But it was just a "bubble" – for the highest incomes, the rate dropped back to 28%. Without this silliness, the '86 reforms might have survived longer.

So what did House Republicans just come up with? A new bubble that would raise the current top tax rate of 39.6% to 45% before dropping back to 39.6%. (Members of Congress will do anything for a laugh.)

Before-tax loss, after-tax gain
Senate Republicans propose delaying the 20% corporate tax rate for a year while allowing immediate deductions of some business expense from income taxable at 35%. Professor Dan Shaviro of New York University Law School gave the NY Times an example of the fun possibilities:

Normally no one would invest $100 to earn only $90 back. But under the Senate plan, where some business expenses could be immediately deducted at a 35 percent rate, you would get $35 back in 2018. So your actual cost is $65. By the time your $90 earnings are paid in 2019, though, the tax rate would be 20 percent. That would cost you $18 in taxes, and leave $72 in your wallet. So even though your investment lost $10, you are still coming out ahead: with $72 on a net investment of $65.)

Best new tax acronym

"To reduce their home tax bill, " the Times reports, "companies like Google and Pfizer, for instance, often relocate patents and copyrights in tax havens and then sell use of that intellectual property back to their American subsidiaries at eye-popping prices." This Global Intangible Low-Tax Income is known as GILTI.

The tax bill will seek to cut off GILTI, but the restrictions could prompt companies to move more research and manufacturing off shore.