Remember the Republican hysteria when the Democrats pushed through a measure to increase funding for the IRS? Well, here’s another approach for government collection of taxes:
Basis shifting allows complex partnership businesses to shift the value of certain assets, such as land or machinery, by moving assets from one business to another one that are linked entities. The moves can allow the partnership to depreciate the same asset over and over again in some cases, greatly reducing tax bills.
Lawyers and accountants for the partnerships say it is legal, and that Congress could pass a ban if lawmakers want to stop the practice. Biden administration officials view basis shifting for the sole purpose of reducing tax bills as illegal, citing a rule known as the “economic substance doctrine” that says the transactions must have a purpose other than just avoiding taxes. [WaPo]
Although, given SCOTUS’ distaste for stare decisis, depending on such a doctrine may be foolish.
But the Republicans may end up embracing this sort of thing anyways. Keep in mind that one of the tenets of the Republican Party is that cutting taxes should result in higher tax revenues as businesses, freed of the horrible burden of taxes, generate more business and thus pay more in taxes – but at a lower rate. This is known as the Laffer Curve, and has not been observed in the wild, only on a napkin of Laffer’s.
I kid you not.
So when the Laffer Curve fails during this second Trump Administration – because we just know taxes are going down – Republicans will be desperate to defend their broken religious tenet.
And here’s a source of revenue that they can use to cover up their failure. It’s sort of hidden, and certainly obscure – it’s perfect.
This could all be wrong, of course, as business’ hold big, if dubious, sway in the upcoming Administration. They may insist on both a tax cut and a defunding of the IRS. It depends on who has Trump’s and Speaker Johnson’s (R-LA) ears, assuming the latter wins the speakership again.
It should be entertaining.
If Biden decides to play politics, he may not try to pass such a rule, but instead leave it on the docket for the incoming President to have to deal with. Hidden taxes funding the Laffer Curve? But more revenue from business … Trump’s head may come off from too much spinning.
