Summer Reading: Taxes

The Taxpayers Protection Alliance (TPA) continues its Summer Reading series focusing on tax reform and specific tax issues that Congress should address. The most immediate needs for reform are the tax code, unresolved issues with how the IRS treats non-profit organizations, and the constant ambiguity on Internet taxes.

Reforming the Tax Code

TPA has been aggressively calling for Congress to act on tax reform to benefit individuals and businesses in order to strengthen the economy. First, the overall tax code must be simplified so that individuals and families are able to spend less time and money on compliance. The complex tax code costs the economy billions of dollars of year and Americans spend long hours complying with all the complicated tax laws. Earlier this year, TPA talked with folks (click here to see) about tax reform.  The common theme from the interviews was that it’s time for meaningful tax reform.  Second, the United States must lower its corporate tax rate.  Currently, the United States has the highest corporate tax rate of all OECD countries at 40 percent.  This excessive tax rate has led to stagnant economic growth and companies fleeing the United States for countries with lower corporate tax rates.  Lowering the corporate tax rate would make the United States more competitive in the global market.

Gift Tax

In addition to making the tax code work better for Americans, the Internal Revenue Service (IRS) must be held accountable for their actions and IRS employees should not be targeting any groups based on political ideology.  One method that the IRS has used to target groups is the taxation of donations through the gift tax.  Current law states that donations to a 501 (c) (4), 501 (c) (5), or 501 (c) (6) are tax exempt.  Unfortunately, in 2011, donors to conservative groups were told that they could be held liable for a gift tax on the contributions.  Even though the IRS has never followed through with this, that threat still hangs over the head of donors and organizations.  Rep. Peter Roskam’s (R-Il.)  bill, H.R. 1104, the Fair Treatment for All Donations Act, clarifies IRS law that any gift over $14,000 to a non profit classified as a 501 (c) (4), 501 (c) (5), or 501 (c) (6) would not be subject to the gift tax.  The bill passed the House of Representatives on a bipartisan voice vote.    The Senate failed to take up the legislation before the summer break and should do so immediately when they return.  Passing the legislation would prevent the agency from any future targeting of nonprofits in a selective way and it would eliminate the risk to the charitable work that all nonprofits do regardless of their political affiliation.

Internet Taxes

Finally, from an online sales tax to Internet access taxes, Internet taxes continue to be important issues for consumers and businesses. First, Congress must reject any online sales tax.  The Senate passed the Marketplace Fairness Act in 2013 as an attempt to tax online sales.  The House of Representatives wisely rejected that legislation.  But, in April, Rep. Jason Chaffetz (R-Utah) introduced the “Remote Transactions Parity Act” which is nothing more than the same online sales tax legislation that we’ve seen from Congress.  Online sales taxes would costs consumer tens of billions of dollars per year.  However, Congress should press forward on passing the permanent ban on Internet access taxes. The House recently passed the Permanent Internet Tax Freedom Act by a bipartisan voice vote, and now the Senate should do same by passing companion bill that was introduced earlier this.  A permanent ban on Internet access taxes would give all Americans a guarantee that they will not face new taxes for simply going online.

The reforms outlined above enjoy bipartisan support, and there is a pathway for action to be taken by Congress. Lawmakers should work together after the August break to resolve these key tax issues before the year is over.  TPA urges Senate and House leaders to do what is right for taxpayers on tax reform, the gift tax, and internet taxes.