The late and illustrious Senator Daniel Patrick Moynihan (DN.Y.), whose highly distinguished career has included the chairmanship of the Senate Finance Committee, has been very critical of the method of passing tax legislation . He reportedly noted that the system often resulted in a “1200 page monster, we vote for, we don’t know what’s in there”. This is certainly apropos for many tax articles of the Build Back Better law passed by the House.
Four years ago, in a very rushed six-week deadline, Congressional Republicans passed – to President TrumpDonald TrumpHouse Democrats pass anti-Islamophobia bill in support of Omar House’s votes to hold Meadows provocative for criminal contempt Hannity and Ingraham hit Jan 6 panel after texts were revealed to Meadows MOREThe exhortation, with presumably little thought, except that it appealed to their campaign backers and contained a cap of $ 10,000 on state and local tax deductions, mostly affecting the blue states – the so-called the law on tax cuts and employment. The law made fundamental changes to the Internal Revenue Code, resulting in a substantial increase in the deficit as well as a substantial migration of profits and jobs overseas.
Instead of absorbing the appropriate lessons from the miscarriage of the Tax Cuts and Jobs Act, Democrats in Congress have added to some of the Build Back Better Act-worthy policy goals many incredibly complex tax provisions. and very questionable.
While there are clearly many human infrastructure challenges that need to be addressed and done as quickly as possible, that does not excuse a democratic version of the tax cuts and jobs law. How many members of Congress who voted for Build Back Better have any idea of the loophole created by the provisions of the legislation weakening the long-standing policy on the taxation of sales and service income of foreign companies in the sub- part F? It is not important for the reader to understand what it is, but those members who voted yes should understand its meaning and its cost.
What about the myriad other pages of changes to the international and corporate tax provisions of the Internal Revenue Code contained in the Build Back Better Act, which dramatically increase tax complexity? Are our representatives and senators not aware that this will increase the difficulty and cost of taxpayer compliance, not to mention that the IRS will be faced with the virtually impossible task of verifying tax returns affected by these changes?
While there are some thoughtful tax policy reviews contained in Build Back Better, others should be dropped. For example, the law contains country-by-country calculations on low-tax intangible global income (GILTI). GILTI was included in the Tax Cuts and Jobs Act to allegedly prevent profits and jobs from leaving the United States when Republicans paid most dividends from foreign affiliates to U.S. multinationals tax-free as per article 245A. GILTI did not however plug the hole in the dike.
What Build Back Better should do is repeal Articles 245A and GILTI. U.S.-based multinationals should be taxed immediately on their global income, but at a rate a few points lower than normal when earned by their foreign affiliates, coupled with potential foreign tax credit relief to minimize double taxation. The lower rate would not, however, apply to the “bad” income contained in subpart F. This would be fairer and much easier to respect compared to the guidance chartered in Reconstruire Mieux.
Moynihan correctly and prophetically explained why the tax laws of over 20 years ago were as they were: “It’s our action… We do it, not the IRS. ”
While corporate tax law by its nature cannot be straightforward, it can certainly be simpler and fairer than what has been done in the Tax Cuts and Jobs Act and contained in the Build. Back Better Act.
Philip G. Cohen is Professor of Taxation at the Lubin School of Business at Pace University and Retired Vice President of Taxation and General Tax Advice at Unilever United States, Inc. The opinions expressed herein do not represent necessarily an organization that Cohen is or was associated with.