Issues & Publications
Programs & Initiatives
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Tax Reform - Issue Summary
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| What is the fundamental issue? |
In 2007, House Ways and Means Committee Chairman Charlie Rangel (D-NY) introduced an important bill that would have repealed the Alternative Minimum Tax (AMT) and overhauled much of the tax system. His bill, H.R. 3970, the Tax Reform and Reduction Act of 2007, was a response to the problems in the tax system caused by the Alternative Minimum Tax (AMT) and the 2011 expiration of the Bush tax cuts. Chairman Rangel's bill was not a replacement model like either the National Retail Sales Tax or the Flat Tax. Its scope, however, is so broad that it should be viewed as a major reform.
In 2009, Chairman Rangel has not yet introduced a new overhaul bill. He is on record, however, as saying that in late 2009 and throughout 2010 he will work hard to restructure the tax system. That overhaul is expected to affect all industries and to have as its goal a broader tax base with a lower tax rate. Chairman Rangel has indicated that "everything is on the table," including the mortgage interest deduction, property tax deduction and capital gains. |
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| I'm a Realtor®. What does this mean to my business? |
The aspect of Chairman Rangel's tax reform proposal most likely to directly affect Realtors are the provisions that govern the computation and taxation of self-employment income. Of all the tax reform models presented to date, none would simplify the taxation of self-employed persons, and some aspects of some proposals would actually be more complicated than current law. The Chairman's proposal does simplify some aspects of computing self-employment income, but it also increases the tax burden on that income. Owners of S Corporations will be required to pay self-employment tax on distributions they pay themselves, whether those distributions are compensation or dividends.
Chairman Rangel's 2007 bill imposed a surtax on Adjusted Gross Income above $200,000 ($150,000 on a single return or married filing separately). The surtax would be 4% for income between $200,000 and $500,000. Income above $500,000 would be subject to a surtax of 4.6%. The legislation does not renew the Bush tax cuts. Under this scheme, the maximum tax rate on high income self-employed persons would be roughly 47% (39.6% on highest bracket, plus 4.6% surtax plus 2.9% Medicare self-employment tax). |
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| NAR Policy: |
| NAR embraces no single tax reform model such as a flat tax or a retail sales tax. Rather, NAR acknowledges the complexity of the current tax system and seeks to assure that tax reforms support the goals of homeownership and freedom to buy, maintain and sell real estate. NAR notes that the homeownership tax provisions are among the most widely used and most readily understood tax provisions. NAR seeks fairness for self-employed persons. |
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| Legislative/Regulatory Status/Outlook: |
| The intense revenue pressures created by the present economic crisis will drive major tax overhaul. To date, no plan has emerged, but both tax-writing committees have indicated that tax overhaul is "must do" before 2011. President Obama has indicated his interest in tax overhaul, but has not yet suggested what direction it will take. He has appointed former Federal Reserve Chairman Paul Volcker to chair a tax reform panel, but the mission of that panel is yet to be determined. Nonetheless, he has directed the panel to report by December 4, 2009. |
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