The new tax law is the focus of two of our feature articles this month, and rightly so: It’s an incredibly intricate piece of legislation—a Chinese puzzle that many people, not just CPAs, could spend years dissecting and reassembling with myriad “what if” scenarios. The objective of the tax act is to achieve fiscal balance without letting the federal government spend the surplus that everyone has fought so hard to achieve—or at least to inject some money into a wobbly economy. But most people will concentrate on the puzzle they see before them, the tangled schedules by which the tax cuts are phased in and out over the life of the law before they sunset in its final year.
Some people say the bill is total lunacy. Others say that the provisions are generally reasonable, and speculate that the government intends to—or should—make them permanent. A reasonable line of logic is that, for the time being, the government wants to maintain a certain level of fiscal pressure: Sunsetting the provisions in 10 years allows ample time for us to see their full implications while keeping us from getting overly and undeservedly secure about the future.
On the subject of the tax system, there is another point of view, although I’m not advocating it. Enough policymakers would like to dismantle the tax code and replace it with something completely different—possibly a value-added tax (VAT) or a flat tax—that this could actually happen. If you haven’t followed these discussions during the past several years (and at the risk of oversimplifying), this is how the concept works: Under a pure flat-tax structure, everyone would pay the same income tax rate, with few or no deductions or exemptions—and none of the loopholes that have ruined previous proposals that tried to be or started out as a flat tax.
A VAT would be similar in concept to a sales tax. Currently, the states imposes a tax of a certain percentage upon certain products at the time of sale to the consumer. Under the VAT approach, a smaller tax rate would be charged each time a service or product is delivered or resold or when value has been added (for example, when a product is passed from a manufacturer to a wholesaler). Done properly, the VAT would virtually eliminate the need for the IRS. Implementing and maintaining a VAT system would cost considerably less than our current tax system. Some lawmakers think the VAT is hopelessly complicated, but others point out that Europe has used a VAT for years and it works fine, even across different economies and currencies.
These concepts are like many ideas, both good and bad, that go through periods of dormancy and major revision and rethinking until the government—and the public—are ready for them.
To advance the role of The CPA Journal in contributing to the public discourse on issues that impact the accounting profession, I’ve asked the editors to develop articles on the flat tax and VAT proposals that are circulating among policymakers. CPAs should be leaders on these issues by developing new ideas and being active agents in creating changes before they’re on the front page of the New York Times. Because you, our members, know more than I do about our tax code—and have better insight into how to improve it—I would like to hear your own ideas on the topic.
Louis Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA
lgrumet@nysscpa.org
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