April 1, 1998

Congress refuses to correct tax-law mistakes it created

COUNTERPOINT

Lawmakers would rather pit public against IRS

April is upon us. The due date for filing 1997 individual tax returns is just a few days away.

The most important tax-law changes affecting almost every taxpayer were the myriad capital-gains changes. The overall long-term tax rate has been reduced for sales after May 6, 1997. The holding period has been extended from 12 to 18 months for asset sales after July 28, 1997. The tax from gain on sale of personal residences has been largely repealed. Under the new law, the initial $500,000 gain from residential sale is now exempted.

A typical taxpayer became aware of the capital-gains law changes when the year-end dividend statements began to arrive in the mail. The payers noted if any long-term capital gain dividends were subject to taxation under the new reduced tax rates.

At first sight, this looked like great news. This thought lasted until it was time to transfer the new information to the tax return. Easy enough, as all capital gains go to Schedule D. However, Schedule D is now two pages instead of one. Page 2 has more than 30 lines to compute tax liability. On second thought, these new capital-gains laws are really complicated.

After last year’s tax act was passed July 29, the Internal Revenue Service and Congress finally read the new act. Strangely, in many instances, the law passed did not reflect the legislators’ intentions. Thus, on Oct. 9, 1997, Bill Archer, chair of the House Ways and Means Committee, introduced the Technical Corrections Bill to fix the errors.

The new, friendlier IRS decided to wait until mid-February to begin processing most 1997 tax returns. Their dilemma was that the law as passed varied from the lawmakers’ intentions. Should it process returns based on the law? Or should it await the technical corrections to fix the law? Should taxpayers filing returns base those returns on a literal interpretation of the law as passed? Or should they file their returns on the draft contents of the technical corrections bill?

April has arrived. The technical-corrections bill has yet to be heard by Ways and Means. Neither the House nor Senate is in a position to quickly pass the bill. Frankly, this situation tells lots about the future of taxation in the country. Everyone complains about taxes; but passing the simplest of bills to assist taxpayers isn’t even on the schedule.

Congress has now moved beyond technical corrections to debating whether the present tax law should be sunset at the end of 2001. While this debate triggers emotional rhetoric on C-SPAN, don’t worry about anything meaningful happening. During the remaining nine months of 1998, Congress will be in session only 60 more days.

Their breakneck pace is to spend on average less than seven days each month working on the business of the country. It must be an election year or something!

The latest fad emanating from Washington is to reduce payroll taxes to lower the tax burden in America. Payroll taxes support two systems: Medicare and Social Security. Remember that Medicare and Social Security face bankruptcy. So, the solution from Congress is to lower the taxes which fund systems already heading toward bankruptcy. Something here just does not add up!

In the end, don’t bank on great changes to income-tax laws. Congress wants to pit the public against the IRS by refusing to correct their own tax-law mistakes. It wants to abandon the current tax system without defining what the replacement system would be. It almost makes you think Congressional leadership wants to undercut the revenue stream to the point that the federal government will no longer function. What a way to run a country!

Former Fort Collins mayor John Knezovich is a certified public accountant.

COUNTERPOINT

Lawmakers would rather pit public against IRS

April is upon us. The due date for filing 1997 individual tax returns is just a few days away.

The most important tax-law changes affecting almost every taxpayer were the myriad capital-gains changes. The overall long-term tax rate has been reduced for sales after May 6, 1997. The holding period has been extended from 12 to 18 months for asset sales after July 28, 1997. The tax from gain on sale of personal residences has been largely repealed. Under the new law, the initial $500,000 gain from residential sale…

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