President Donald J. Trump speaks often about his tax reform bill that became law in December of 2017, creating a $1.5 trillion tax cut for a broad swath of American taxpayers. However, the legislation contains numerous unintentional errors that may prevent the bill from having the effects intended.
Our San Francisco tax attorneys believe that dozens of errors made the final edit of the new bill, each of which have the potential to dramatically alter the legislation’s ultimate impact.
Worse, many of the errors occur in the most controversial sections of the law. This could make it more difficult to secure the votes necessary to rectify these unintentional errors.
For example, lawmakers intended to create a short-term tax deduction that retailers, restaurants, and real estate firms could use to deduct the costs of expansion and renovations from their federal tax returns. According to a New York Times report, however, a typo requires these businesses to spread the tax break out over a period of up to 39 years instead of claiming it all immediately, removing the financial incentive for expansion lawmakers intended to include.
Ironically, President Trump’s own real estate empire is expected to be adversely affected by this mistake.
Another error creates an unintentional loophole allowing money managers to get around provisions intended to limit their access to potentially lucrative tax breaks. This will allow them to pay a lower marginal tax rate than typical wage earners on some of their income despite the fact that many money managers are already independently wealthy.
Congress could fix all of these errors by passing a “technical corrections bill” to amend the previous legislation, but Republicans would need votes from Democratic senators to pass it. The original bill did not receive a single Democratic vote, and reports indicate that Democrats are in no hurry to help their colleagues out on this issue.
For instance, Senator Sherrod Brown, D-Ohio, recently told Politico that his party has no interest in fixing the tax reform law’s typographical errors when they feel the law itself is fundamentally flawed. Sen. Brown sits on the Senate Finance Committee responsible for writing tax laws, so his opinion is likely valid for the vast majority of his Democratic colleagues.
Alternatively, the Treasury Department could issue “regulations” to fix some of the errors in the existing legislation. However, experts note that it is impossible to alter the underlying statute in this manner. Any attempt to do so could also invite litigation pertaining to what was actually intended in the legislation, potentially creating a lengthy legal battle.
Lawmakers and taxpayers alike are confused about how President Trump’s reform bill has so many errors in the first place. Legislation typically contains a few typographical mistakes, but the tax reform law has many more than the average bill.
Some experts have argued that the rush to get this bill in front of congress is to blame for the high volume of errors. The last bill to make a comparable number of changes to existing tax code was passed in 1986. It took over three years to iron out and enjoyed bipartisan support when finally passed.
By contrast, President Trump’s tax reform bill lacked bipartisan support and took only months to complete. It also required multiple eleventh hour changes to secure many Republican votes, potentially introducing inconsistencies in the final version of the law.
There is still a chance that lawmakers find a way to amend the legislation before it goes into full effect, so taxpayers may not ultimately be affected by any of these typographical snafus. However, there is a chance that the law takes effect as written instead of intended. Some tax attorneys in the bay area predict that these errors could adversely affect taxpayers and the American government for years to come.
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