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In what turned out to be perfect timing, tax expert, Heartland Institute Policy Advisor, and author Daniel J. Pilla was the featured speaker on April 27 at the Heartland Institute on the same day Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn were sent out by President Trump to reveal his tax plan at a White House press conference briefing. (Watch Pilla’s presentation at Heartland here.)
Cohn called the Trump’s tax reform package the most significant tax reform legislation since 1986, and one of the greatest tax cuts in American history – while fully anticipating attacks “from the left and right” over the plan, whose aim, he said, was to “create jobs and economic growth.
Speaker Background: Dan Pilla – ‘Premiere Expert on IRS Procedures’
For over three decades, Daniel J. Pilla has been the nation’s leader in taxpayers’ rights defense and IRS abuse prevention and cure. Widely regarded as one of the country’s premiere experts in IRS procedures, he has helped countless thousands of citizens solve personal and business tax problems they thought might never be solved. Pilla has seen every type of tax problem and believes “there is no such thing as a hopeless tax problem.” See here for Pilla’s comprehensive site, the Tax Freedom Institute, which is dedicated to “Understanding Your Taxpayer Rights and Solving Your Tax Problems.”
Pilla is the author of 14 books, dozens of research reports and hundreds of articles. His work is regularly featured on radio and television as well as in major newspapers, leading magazines and trade publications nation-wide. Dan is also a frequent guest on major talk radio programs where he is heard by millions of people each year. His fast-paced interviews provide hard hitting answers to even the toughest questions, as is demonstrated in this YouTube video of Pilla delivering his very entertaining and passionate lecture to Heartland members and friends.
Pilla on Trump’s Tax Plan
Pilla initially questioned whether Trump’s tax plan could be considered radical tax reform, as Heartland Director of Communications Jim Lakely posited in his introduction. Pilla said it wasn’t “radical,” and explained how tax reform has never been a problem in the action sense of the word. He explained his opinion by presenting examples of several attempts at tax reform since 1986, the high mark of the Reagan Revolution.
In the 1990s, he said, there were four major tax reforms in three years. From 2001 to 2015, there were 5,900 tax law changes made to the Internal Revenue code – and this only led to massive confusion. Pilla called the tax code “hideous” – citing its complexity as the reason for so much cheating, even labeling tax complexity as the number-one problem for tax payers. Pilla spoke about a 1998 law which maintained that the IRS must submit to Congress a report on tax law complexity. Only two reports were submitted, both before 2002, indicating that the required report is too difficult for the IRS to produce.
Trump Tax Reform Proposals Pilla Likes
Pilla suggested that several of Trump’s proposed tax reforms are, if not “radical,” a great improvement – which would improve compliance, eliminate complexity for taxpayers, and encourage economic growth.
- Repeal of the Alternative Minimum Tax, in which government can tax an individual at a higher rate if government decides you haven’t paid enough tax in your initial filing. This “second system” kicks in, and then the taxpayer is obliged to pay the higher result of filing, basically, twice.
- Repeal of estate and gift tax, which was a part of the Bush tax law (as long as you died in 2010), but was part of 10-year plan and has been phased out. Pilla spoke of the tax as fiscally insignificant and immoral. Less than one-half of one percent of federal revenue is generated by this tax, yet its audit rate is the highest of all other taxes. The immoral premise is that you have no right to pass along to your heirs what is left of your estate after you have already paid all of its taxes.
- Repeal of a 3.8 percent capital gains surtax (a tax levied on top of another tax) that was to pay for free healthcare. Pilla noted the economic law that what you tax more, you get less of – i.e. high capital gains taxes curtail individuals from selling assets, which spurs economic activity. People hold on to their assets rather than pay the capital gains surtax.
Other Positive Elements of Trump’s Tax Plan
Pilla also spoke highly of these other aspects of the Trump tax plan:
- Reducing the current seven income tax brackets to just three: 35% on high side; 10% on low side.
- Eliminating standard deductions, except for mortgage and charitable contributions.
- Reducing corporate tax to 15 percent. Pilla noted that United States now has the highest corporate income tax in the industrialized world (a top marginal rate of 39 percent). He also explained that corporations don’t pay taxes. Who pays? People do: the owners of the company (stockholders), employees making do with fewer workers, and consumers who pay more for the good being produced. Job-creating small businesses that account for their owners’ personal incomes would likewise benefit by having their top tax rate go from 39.6 percent to the proposed corporate tax rate of 15 percent. Pilla’s suggestion: Reduce the corporate tax rate to ZERO PERCENT.
Several times Pilla reminded his audience that what was presented by Trump’s financial team was only a thumbnail sketch of Trump’s tax plan, only the first volley, so expounding in length about Trump’s tax plan today might not matter much in a few weeks. For him, he said, it would be like tilting at windmills, trying to guess what the final plan will look like.
The Folly of ‘Revenue Neutral’ Tax Cuts
Pilla signaled that the Democrat Party – and some Republicans are of the same ilk – would be a significant hurdle to getting Trump’s tax plan enacted by insisting that any tax plan be “revenue neutral.” That would nullify all the benefits of tax cuts, and only end up shifting the tax burden. It is unfortunate that over time the federal government has come to believe that it owns all of our money and too many people have accepted the idea that government has the right to tell us how much of our money we can keep.
What happened, Pilla said, to providing for the “General Welfare” as set forth under Article 1, Section 8, Clause 1: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States”? Whereas the General Welfare clause should place limits on government spending, the contemporary view is that Congress’s power to provide for the “General Welfare” is a power to spend for virtually anything that Congress itself views as helpful.
Pilla suggested a novel idea for many legislators: cutting spending across board by 3 percent from our bloated federal government to pay for tax cuts, which would amount to just 3 cents on every dollar the government spends.
Pilla was not pleased that the complexity of the IRS tax code – already cited as the No. 1 tax problem for tax payers by the IRS itself – has not been addressed by a single talking head, nor does Trump’s tax plan address the issue. The Pilla solution: If the problem is not addressed, “bulldoze the tax code and start over again.”
The IRS in Crisis
Although many individuals try to comply with the tax code, they find it too complicated to do so. The IRS should be offering assistance to those who wish to comply, he said, and enforcing the law against only those who are genuinely resisting compliance. A lot of innocent tax payers in the formal category only receive lip service from the IRS.
Cited by Pilla: The IRS fields more than 100,000 phone calls a year from Americans with questions about complying – many who simply want to set up a schedule for paying their taxes or inquire about refund – but they can’t get through to anyone at the IRS who can help. Millions more choose to walk in to IRS offices and receive help with tax problems. How ironic that the IRS has closed 300 offices – and those remaining open were informed not to answer questions during the tax season. What a dismal message the IRS is sending tax payers when in trying to pay their taxes they can’t get through.
Pilla noted that 42 percent of the IRS budget goes for enforcement, while less that 20 percent is spent on tax-payer assistance. This doesn’t make sense, because 98 percent of tax payment made to the IRS are “voluntary” payments complying with the tax code. In contrast, only 2 percent of taxes collected are the result of enforcement action.
Did the adoption of a Taxpayer Bill of Rights by the Internal Revenue Service on June 10, 2014 become a much-anticipated cornerstone document to provide the nation’s taxpayers with a better understanding of their rights?
What about the law to appoint an IRS Commissioner? Given the way the IRS tax code was treated during the past two years under IRS Commissioner John Koskinen who condoned Lois Lerner’s Tea Party Scandal? Instead of firing Koskinen, Trump kept him on, despite the ire of many Republicans who wanted Koskinen impeached. An IRS commissioner can be removed at the will of a president. Dan Pilla said Trump should have taken such action.
Q&A with Dan Pilla
On the incomprehensible U.S. Tax Code: A tax code that contains four million words is a good sign that corruption will exist, and it does!
On a “tax holiday” for overseas profits, which is part of Trump’s tax proposal: A tax holiday could only be a good thing in its impact. Some $3 trillion is parked off shore and could be brought back by American companies. This money represents capital to expand.
On getting rid of the income tax: The taxes on income levied by the federal government brings in 98 percent of federal revenue. Eliminate the income tax and instead impose a national consumption or sales tax.
When questioned about the willingness to lose his job if the tax code was changed to reflect his views, Pilla countered: The willingness to lose his job is a test of a good idea.