Is It a Business Man’s World?

Corporate tax reform: It wouldn’t affect all businesses. A cut in the corporate tax rate won’t benefit millions of unincorporated businesses, and those firms don’t think that’s fair. These include pass-throughs such as partnerships or S corporations that can range from small businesses like plumbers or freelance writers to larger entities such as  private equity firms or even privately-held manufacturing companies. They file individual tax returns, account for nine of ten businesses and produced $850 billion in business income in 2012. Fair or not, individual and corporate tax reform are intertwined. It’s impossible to imagine doing one effectively without the other.

“Why can't a woman be more like a man?” Was Henry Higgins on to something when he sang that question in “My Fair Lady?” A paper in the latest Journal of American Taxation finds that companies with female CFOs are 17.4 percent less likely to adopt tax shelters. Female CFOs might be more appreciated by other taxpayers and the Treasury, but not by shareholders. And female CFOs are less tax-aggressive than males only when they are more concerned about job security. So maybe a woman can be like a man… if she knows she won’t be fired for it.

Teachers and students could benefit from Minnesota tax code changes. If state legislation passes, teachers could deduct up to $250 in out-of-pocket expenses for teaching supplies and deduct the cost of mortgage insurance premiums, while students could deduct between $2,000 and $4,000 in college expenses. The changes, expected to reach Democratic Governor Mark Dayton within weeks, would bring the state’s tax code in closer alignment with federal law and would apply to the 2014 tax year, just in time for filing season.

Speaking of filing season: It’s just around the corner and it won’t be pretty. IRS Commissioner John Koskinen sent IRS employees an email indicating that slower tax refunds, fewer identity-theft protections and worse customer service will define this year’s season. There will also be 1,800 fewer IRS enforcement officers and 46,000 fewer audits. Koskinen says the enforcement cut-back will cost Treasury $2 billion in tax revenue. This isn’t exactly a surprise, since the agency’s budget was cut by $346 million in December, forcing it to work at its inflation-adjusted 1998 funding level.

Maybe the budget deficit is a big deal. Or maybe not. That’s the debate between TPC’s Bill Gale and UC Berkeley’s Brad DeLong, as TPC’s Howard Gleckman reviews. DeLong seems more the optimist, noting that the deficit is on a downward trend, and likely will shrink further, assuming “Congress will eventually enact a carbon tax and that the Affordable Care Act will help control future health costs.” Gale has a dimmer view of the future, with respect both to the trajectory of the deficit and the legislative outlook. It’s an important debate that will surface often in the coming year.

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