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US Tax Plans May Give Your Co-Worker a Better Deal Than You

06:06  11 december  2017
06:06  11 december  2017 Source:   nytimes.com

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But in the tax code envisioned by Republicans, the amount you make may be less important than how you make it. Consider two chefs working side Expect the best -paid dentists to turn into corporations so that they can take advantage of the new 20 percent corporate tax rate, instead of having to pay a

Tax plans may give your co - worker a better deal than you In most places, a dollar is a dollar. But in the tax code envisioned by Republicans, the amount you

A decorator, an artist or a plumber would have a higher tax rate than an owner of a decorating business, an art shop or a plumbing supply store. © Daniel Acker/Bloomberg News A decorator, an artist or a plumber would have a higher tax rate than an owner of a decorating business, an art shop or a plumbing supply store.

In most places, a dollar is a dollar. But in the tax code envisioned by Republicans, the amount you make may be less important than how you make it.

Consider two chefs working side by side for the same catering company, doing the same job, for the same hours and the same money. The only difference is that one is an employee, the other an independent contractor.

Under the Republican plans, one gets a tax break and the other doesn’t.

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Tax Plans May Give Your Co Worker a Better Deal Than You .

GOP tax plans privilege unearned income over wages. Even the self-employed contractor only gets the full break if she can show that it's mainly "For the first time since the U.S. adopted an income tax , a higher rate would be applied to employee wages and salaries than to income earned by proprietors."

That’s because for the first time since the United States adopted an income tax, a higher rate would be applied to employee wages and salaries than to income earned by proprietors, partnerships and closely held corporations.

The House and Senate bills vary in detail, but both end up linking tax rates to a whole new set of characteristics like ownership, day-to-day level of involvement, organizational structure or even occupation. These rules, mostly untethered from income level, could raise or lower tax bills by hundreds or thousands of dollars for ordinary taxpayers and millions of dollars for the largest eligible businesses.

“We’ve never had a tax system where wage earners were substantially penalized” relative to other types of income earners, said Adam Looney, a senior fellow at the Brookings Institution and a former Treasury Department official.

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Tax Plans May Give Your Co - Worker a Better Deal Than You says the New York Times. Salary employees could pay higher taxes than hourly, corporations may be able to still deduct state taxes , but employees can't, etc. If this is an effort to "simplify taxes ," this is the most convoluted plan I've ever

Give your co - worker an incentive. You may present your case to a colleague as to why they need to work better with you --but without an incentive, they may not be accommodating, Teach says.

So a decorator, an artist or a plumber would have a higher tax rate than an owner of a decorating business, an art shop or a plumbing supply store. A corporate accountant could have a higher rate than a partner in an accounting firm. And under the House bill, which differentiates between active and passive investors, the head of a family business who works 60-hour weeks would have a higher rate than her brother, who doesn’t work there and can spend his days sleeping on the couch.

The proposals’ impact rises steeply as paychecks grow. High-income earners — roughly the upper 10 percent — who can take advantage of the new distinctions would be rewarded with substantial gains compared with those who can’t.

To prevent certain professionals and specialists like doctors and others from reorganizing themselves as pass-through companies, the Senate excluded households with joint incomes of $500,000 or more. © Béatrice de Géa for The New York Times To prevent certain professionals and specialists like doctors and others from reorganizing themselves as pass-through companies, the Senate excluded households with joint incomes of $500,000 or more. Supporters argue that the revised tax regime is an attempt to update the code to reflect changes in the economy. Rather than depend primarily on individual rate cuts to further power the economy, the Republican plans focus on cutting taxes on certain types of business income. The idea is that these businesses will reinvest those higher returns and stimulate growth.

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Let our team at Aldin & Associates help you to understand what matters in dealing with your taxes . Contact us at 954-612-4091 or aldinandassoc@gmail.com to arrange a consultation. 10 December 2017 ·. “ Tax Plans May Give Your Co - Worker a Better Deal Than You ” - The New York Times.

The plan wraps in far more workers than are usually eligible for unemployment benefits, including self-employed people and part-time workers . The bottom line: Those who are unemployed, are partly unemployed or cannot work for a wide variety of coronavirus-related reasons will be more likely to

“This is a radically different approach,” said Fred Goldberg, commissioner of internal revenue under President George Bush.

Corporations and other types of businesses get the biggest cuts. Employees don’t.

“Theoretically, this makes a certain amount of sense in a vacuum,” said Jared Walczak, a senior policy analyst at the conservative Tax Foundation. “It’s just difficult to define what constitutes wage income compared to business income.”

Indeed, economists and tax experts across the political spectrum warn that the proposed system would invite tax avoidance. The more the tax code distinguishes among types of earnings, personal characteristics or economic activities, the greater the incentive to label income artificially, restructure or switch categories in a hunt for lower rates.

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Your boss may not want you and your co - workers to compare your salary or benefits, but they can't prohibit it. Under the NLRA, any attempt to quash It allows them to avoid paying benefits and some employment taxes . However, businesses may classify workers as independent contractors when

We are offering tax help for taxpayers, businesses, tax -exempt organizations and others – including health plans – affected by coronavirus (COVID-19). Economic Impact Payments. We have sent most payments to taxpayers.

Look for a wave of promotions as staff lawyers on salary suddenly turn into partners to qualify for the 23 percent deduction the Senate bestowed on pass-through businesses.

Pass-throughs, which range from an ice cream stand to multibillion-dollar operations like Georgia-Pacific (a Koch Industries subsidiary) and Fidelity Investments, don’t pay corporate taxes. Instead they pass through income to their owners or shareholders, who pay taxes at the ordinary rate on their individual returns.

The Republican provisions applying to pass-throughs have been singled out for some of the greatest scorn. Writing about the House version, Dan Shaviro, a professor of taxation at New York University Law School who worked on the 1986 tax overhaul, said it “might be the single worst proposal ever prominently made in the history of the U.S. federal income tax.”

Uneven treatment is compounded by other rules that unintentionally introduced preferences.

To prevent certain professionals and specialists like investment managers, doctors, athletes, performers and others from reorganizing themselves as pass-throughs, the Senate excluded households with joint incomes of $500,000 or more (and $250,000 for single taxpayers). But the peculiar way the income scale is phased out means that solo practitioners and partners who earn roughly $529,000 to $624,000 could face a tax of up to 85 percent on income between those two thresholds, according to the nonpartisan Tax Policy Center.

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A graph of the rate increase looks as if a skyscraper were plopped in the middle of an open field. That is a powerful incentive to search for tax shelters.

At the same time, an unrelated rule that closes a loophole affecting highly paid corporate executives will have the effect of allowing pass-through corporations — but not traditional corporations — to deduct compensation over $1 million.

“The more you look at any of the major rules, the more ambiguities, glitches, clearly unintended consequences and tax planning opportunities you see,” said Michael L. Schler, a lawyer in the tax department of Cravath, Swaine & Moore. He has written a 50-page summary of the more glaring problems, scheduled to be published soon in Tax Notes.

The proposed classification system is unusual. Although the gains on long-term investment have generally been taxed at lower rates for most of America’s tax history, all other income was taxed at the same rate since the federal income tax was instituted in 1909.

That included both earned income — money generated by a day’s labor — and what is called unearned income, which includes dividends, interest on bonds, alimony, rent, royalties, licensing fees and pension checks.

If anything, wage earners, at least in the popular imagination, were elevated above the original “coupon cutters” — not thrifty housewives but those who lazed on the couch and collected income generated by securities, which they clipped at the corners to redeem. In the 1920s, steely capitalists worried that such indolent fat cats would undermine entrepreneurship while fiery radicals ridiculed their only work as picking up a ticket at the opera box office.

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But despite countless loopholes, exemptions and special breaks in the tax code, there was never a move to single out employee compensation from other earned income.

Efforts to simplify the system and move closer to uniform rates were most successfully championed by President Ronald Reagan and congressional Democrats when they sharply lowered individual rates in the Tax Reform Act of 1986. Earnings and even long-term investment gains were briefly taxed at the same rate for the top bracket.

“There was a simple notion there,” said C. Eugene Steuerle, a deputy assistant Treasury secretary for tax policy during Mr. Reagan’s second term and now an economist at the Urban Institute. “We said, ‘Let’s create a top rate that is as even as we can get it across all sorts of structures and most types of capital income.’” The source didn’t matter.

Long-term capital gain rates were again lowered in the 1990s. And the tax code took a major step away from the reform act in 2003 under President George W. Bush when short-term capital gains, like dividends, were taxed at a lower rate than wages.

Relative to the Reagan approach, Mr. Steuerle said, the latest Republican bills are “moving in the opposite direction.”

In some eyes, the message contained in the bills is as disturbing as the practical impediments. Tax codes are as much about values as they are about accounting. And rates and breaks are deployed to encourage or discourage various types of activities.

“Wage income will be the highest taxed income,” said John L. Buckley, a chief of staff for Congress’s Joint Committee on Taxation in the 1990s. That’s what more than 80 percent of working Americans get.

“I think it’s grossly unfair.” he added. “Somebody working for a wage gets a higher tax rate than somebody doing the same job under a different legal structure.”

A look at some winners and losers under the GOP tax plan .
<p>Count President Donald Trump among the personal winners in the $1.5 trillion tax package that Republicans in the House and Senate passed Wednesday. It's not only a political score for Trump but likely a windfall for his real estate empire, too.</p>Oil drillers would also benefit. So would multimillionaire and billionaire owners of sports teams. Companies would enjoy a bounty from permanently lower tax rates. Lawyers and accountants will profit from the advice suddenly needed to guide clients through the tax plan.

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