Hooo-o-ooo boy, I love it. The "Tax Reform Bill of 1984" has been passed with much fanfare by a supposedly budget-minded Congress and signed by a supposedly low-tax president. Hah! The new tax bill-just the latest installment in a long-running yearly tragicomedy-might just as well be called "The Tax Lawyers and Accountants Relief Act." It's about 1,300 pages long, and no one except lawyers and accountants will be able to figure out what it all means... and maybe not them either.
The bill further screws the American taxpayer, to the tune of about $50 billion-all, naturally, in the name of "reform." (Let's face it: when physical torture is approved by Congress for tax investigations, and the penalty for tax resistance is death, our elected representatives will still call it "tax reform.") And the bill impairs or wipes out some pretty good little tax dodges that mostly benefited us working stiffs.
Let's look at some of the more-important provisions for individuals. One of the absolute worst parts is an attack on non- taxable "fringe benefits." You know, things like free travel passes for you and your family; employer-supplied work clothes, tools, low-cost vacations, meals, and child-care services; free use of employer-owned health resorts, etc. All gone, it appears. All the above are "non- statutory" fringe benefits-they're not specifically provided for in the tax law, unlike death benefits up to $5,000, health-care plans, pension programs, and such.
The new law lays out five "tests," one of which must be met in order for a fringe benefit to be nontaxable. The entire area is basically reduced to (1) services provided which cost the employer nothing "extra," (2) certain employee discounts, (3) benefits relating to "working conditions," (4) benefits which are of such little value that they can't economically be kept track of, and (5) certain tuition reduction plans for non-graduate- level education. That's it, folks.
What else have they done to us? Income averaging-useful when an individual has rapidly increasing income over several years-has been fixed so that fewer individuals will benefit. They've clamped down on business automobiles as a tax break: now the damned things have to be used more than 50 percent for business, or you lose the investment credit and accelerated depreciation. In addition, strict documentation of business use must be kept, or you don't get the business-use deductions. These rules also apply to all business property used partly for personal purposes... such as computers. And use for investment-planning purposes doesn't count.
Congress has also gone after the Evil Businessman who buys "luxury" business autos: now, the maximum investment credit a taxpayer can get on any business car is $1,000, and depreciation deductions for the first three years of ownership-normally the entire cost of the car-are limited to $16,000.
They went after the Reagan-revolution tax breaks too. Tax indexation, which will prevent all of us from being automatically ratcheted into higher tax brackets as government causes more inflation, survived repeal by one vote. We weren't so lucky on others:
- Starting in 1985 we were going to be able to deduct 15 percent of net interest income, up to a maximum of $450 for single people and $900 for married couples. That's now dead.
- In 1984 the amount of depreciable property that could be currently "expensed" was to increase to $7,500 and then to $10,000 starting in 1985. That's delayed: the amount stays at $5,000 until 1988, when the $7,500 limit kicks in, going to $10,000 in 1989.
- Foreign earned income is tax-free up to $80,000 as of 1983; each following year the amount was to increase by $5,000, to $95,000 in 1986. That $80,000 is frozen through 1987, when the increases again begin (unless they're re-killed at that time, a distinct possibility for every scheduled tax break).
Interest-free loans, an excellent tax-planning tool, especially for families, were absolutely ravaged. The new, complex rules for such loans can cause them to be subject to both income and gift taxes. Careful planning can beat part of the new gouge, however. All kinds of new rules have also been added regarding tax shelters and their promoters, but of course none of the new rules benefit the taxpayer. And then there are the extensive new powers and penalties that the IRS can use against those who fight: tax-dodge churches, filers of "frivolous" lawsuits, "valuation abusers" regarding property donated to charity, and so forth.
And folks, let's get one thing clear: there are many, many, many, many other complex new tax-law provisions. The system is convulsing and twisting in upon itself. The object is to force ever more money out of the producers in our society. The effect will be to enrich tax professionals and drive more of the economy "underground." As for government, the tax increase will probably cause further increases in spending, with higher deficits and an extension of the scope and power of various bureaucracies. This is the historical pattern.
Now, there are a few positive provisions in the bill. The capital-gains holding period is going down from one year to six months. Certain charitable contribution limitations have been increased. Further tax incentives have been laid on Employee Stock Ownership Plans (but probably only because this has been sold to Congress not as a way of spreading capitalism around but as thinly-veiled Marxist claptrap about "worker ownership of the means of production"). But overall, the bill is just another giant step increasing the power of government to tax and snoop in our lives. It is an awful act that should have been vetoed by President Reagan.
What's coming next year? Get this: Mr. George H. Henry, senior tax counsel for the Democratic-controlled House of Representatives, stated in a June 1984 speech that the "present tax system is unfair to little people. It favors the wealthy and business." Thus, he predicted 1985 will bring two new pieces of tax legislation: one for more "reform" (read: higher taxes), and another for "revenue enhancement" (read: higher taxes). With friends like him, America hardly needs the fools in Congress who are running us into the ground.
So batten down the hatches! Our lawmakers are doing their best to cause another anti-tax revolution. The question only appears to be when.
Timothy Condon is an attorney and tax specialist practicing in Florida.