New Tax Law: Things You Should Know
New tax law significantly reduces corporate taxes from 35% to 21% and shifts to a territorial tax system. Multinational corporations no longer have to pay U.S. tax on their foreign profits. The new law exacerbates the skewed distribution of wealth, with estimates that almost a third of the tax benefit will go to the top one percent of households. The Trump Administration says that the new tax law is beneficial to workers, but a recent study found that it will only benefit the wealthiest 1 percent of households.
The British tax system is one of the oldest in the world, and was first introduced in 1799 to help with the financial burden of the Napoleonic Wars. Only later did the tax burden become a significant burden, as the proper spheres of government expanded. Today’s states increasingly interfere in cultural, economic, and social matters, requiring a greater amount of taxation. And with all that power comes responsibility. So, what is tax law?
The new tax law includes several controversial provisions. The most controversial change is the passage of the “pass-through” provision, which invites abuse and undermines the integrity of the income tax. For instance, a recent last-minute change to the tax bill excluded architects and engineers from the list of “professional services.” The drafters of the law offered no explanation as to why they removed them. In this way, the new tax law is likely to favor foreign production and investment.
Income tax law is complex, so understanding the terms used to refer to it is crucial. For example, “gross income” refers to all income from whatever source is earned. Detailed definitions of taxable and adjusted gross income are found in 26 U.S.C. SS 61. Those two terms are used to determine how much a person earns. The next section of the tax code explains what is considered “adjusted gross income” and “taxable income” and how they are calculated.
A graduate of a tax law program will have several opportunities for career advancement. The Tax Clinic will help students represent low-income taxpayers before the IRS and prepare offers in compromise. They will also be exposed to the U.S. Tax Court calendar in New York City and will participate in mock trials before the court. Clinic seminars will be conducted by practicing tax attorneys. They will gain valuable insight into the field of tax law and its procedures. Once they have gained this knowledge, they can begin practicing tax law.
The new tax law has a number of significant flaws that need to be addressed. It will cost the nation $1.5 trillion over the next decade and deliver windfall gains to the wealthiest households and corporations. But it will also result in lower revenues, making it harder to deal with national needs like the aging baby boom. It will also increase the gap between rich and poor. The new tax law may not be enough to remedy the problems, but a basic restructuring of the law could address these issues.
Pass-through income will see significant changes in tax law. Pass-through income is now subject to a 20 percent deduction, but this deduction is heavily skewed towards high-income business owners, who receive the majority of their income through their businesses. In addition, the new tax law will allow high-income individuals to convert income into pass-through structures and secure significant tax savings. In the meantime, high-income individuals will have to make more changes.
In the new tax law, profits made by American businesses outside the U.S. will be taxed in the United States. Those profits represent the return of tangible and intangible assets, as well as intellectual property. If the company earns $500 million, it will be taxed at a rate of 21 percent. That would amount to $31.5 million in tax on the foreign profits. Moreover, American citizens living abroad will also be required to file tax returns.
The federal government imposed temporary income tax cuts for individuals in various states and enacted business tax incentives. Likewise, local governments adjust property taxes. These tax rates vary depending on different factors. The U.S. Congress proposes new tax laws and the legislature votes to make it law. The laws become law once passed. Whether a tax is deductible or exempt depends on the specific situation. The question is, what does it matter to you?