While working on finishing up my 2004 CPE over the past few weeks, I noticed that there are actually plenty of self study courses based on the infamous Enron shenanigans:

Enron: The Accounting Profession’s 9-11?

Enron: Fraud, Deception, and the Aftermath

Securities Trading in the Post – Enron Era

Six Convicted in Anderson’s Ark Tax Shelter Case – My senses perk up when I see a story that looks like it may be about something going on here in Arkansas; but this isn’t one of those.  Joe Kristan at Roth & Co. has been doing an excellent job covering this “Ark” tax scam.

Bush Ready to Name Tax Reform Panelists This Week – My invitation seems to be hung up in the mail.

Q:

Subject: why aren’t corporate brackets indexed?

The same goes for the retained earnings limit. Neither have increased for what, 25 years?

A:

You are absolutely right that the C corp tax brackets and threshold for the accumulated earnings tax haven’t been changed in far too long and haven’t come anywhere close to keeping up with the overall cost of living in this country.

We all take for granted the annual inflation adjustments for the beginning and ending points of individual income tax brackets, as well some other tax items, such as personal exemptions and standard deductions.  However, these are a relatively new part of our tax code and are not even beyond repeal.  Every so often someone in Congress will float the trial balloon of freezing the individual income tax brackets where they are, along with an estimate of the billions of additional tax dollars the Feds will be able to reap just from the bracket creep, where people just keeping pace with normal inflation in terms of their incomes are pushed into higher percentage tax brackets.

The C corp tax brackets are just one item in the tax code that hasn’t been allowed to increase with the cost of living.  There are actually several more, such as related to tax free employee benefits and dependent care expenses.  For example, $50,000 of coverage under a group life insurance plan was a lot of money decades ago when this became the cut-off point for a tax free employee benefit; but it’s nothing today when policies for millions are more common practice.  Other unfair fixed dollar amounts that readily come to mind are the thresholds for taxing the benefits of evil rich Social Security recipients.  Those figures of $25,000 of gross income for single people and $32,000 for married couples have been in place for so long that more and more people have found themselves having to pay tax on what were supposed to be tax free benefits. 

Even parts of the tax code that have inflation adjustments aren’t safe.  The thresholds for the insane Alternative Minimum Tax (AMT) are actually scheduled to drop in 2006, forcing many more people to pay what was supposed to be a tax on only the evil rich.  

When tax laws are passed by our supreme rulers in DC, they include language describing either specific dollar amounts that don’t change or a specific provision allowing for an inflation adjustment factor.  While I have never had the time to sit down and actually count each and every tax provision as to whether it uses a fixed dollar amount or one that is raised periodically, I would guess that there are more fixed amounts than floating ones.  That would actually make a very interesting project for some college tax course.  Each student could be assigned a portion of the tax code and tabulate the different threshold amounts and categorize them as fixed or adjustable.  Adding them all together to encompass the entire tax code would be quite enlightening.

Back to your original questions about adjusting corporate tax brackets for inflation, I wouldn’t hold my breath waiting for that to happen. In our society today, corporations are considered the focus of evil and anything to reduce their tax burden is a very tough sell.  We would have better luck asking for inflation adjustments of things affecting lower income individuals.

I realize this is a long answer to a short question; but there are few simple things when it comes to discussion of our Frankenstein tax system.

Kerry Kerstetter

 

The blogger take on the issues – A good look by Bruce Bartlett at the growth of specialized blogs, including a few of the tax related ones.  He has completely grasped the fact that, while many of the other tax blogs cover taxation issues from an academic and theoretical perspective, mine strives to cover the more practical real world applications.  I appreciate the recognition and am glad so many people are able to share so many viewpoints via blogs and the web in general.