The new federal tax law will provide a $1.5 trillion tax cut and balloon the deficit, with benefits concentrated on the high end of the income scale. But don’t believe anyone who says it has simplified the tax code. The New York Times reports:
Already, lawyers and accountants are eyeing several provisions that investors and companies could potentially exploit.
The bill, for example, lowers the taxes on so-called pass-through income, which is earned by partnerships and other types of businesses. Congress sold the provision as a way to help smaller companies. But lawmakers added language that allowed big real estate developers to benefit. The result could be a tax break for any company that buys and operates a building for its business.
The new law is also supposed to encourage companies to make investments in the United States. But the rules were written in such a way that they could give businesses an incentive to keep their money in foreign countries and build factories abroad.
The provision, known as the domestic production activities deduction, gave companies a tax break on income they earned from making things in the United States. It was intended to help American manufacturers, which were struggling to hold their own against competition from overseas.
Then a raft of other industries heard about the rule as it was being devised and fired up their lobbying machines. Suddenly, everyone became a manufacturer.The wildly popular manufacturing break, passed in 2004, is a case study in the unforeseen consequences of changing the tax code — how companies take advantage of gaping holes and force the government to play catch-up.
That 2004 blunder has now been removed. Pass laws in haste and repent for a long time.