The Tax Reform Act of 1986

From a Christian Perspective

by Larry Ball
The day after Christmas most Ameri-
cans received their 1040 Tax Package in
the mail. The IRS must intentio{lally
delay these mailings until after Ouist-
mas so we can enjoy givmg to one
another without being reminded of how
much we must give to Uncle Sam. .
We have been told by Congress that
the new Tax Reform Act of 1986 (TRA
86) is revenue neutral {the federal gov-
ernment will get the same amount of
money). We also have been informed
that out tax returns will now be more
simplified. The verdict ort both of these
assertions will be out until our first
trial run (1987 Returns).
What does TRA 86 mean to you 1
How will it affect the average American
family? More importantly to us, how
will TRA 86 affect the typical Chris-
tian family?
Before we discuss the tax ramifica-
tions of this new tax law maybe we
should defme the typical Christian fami-
ly. I realize the danger of stereotyping,
arid there will be exceptions to the pat-
tern for various reasons, but certain prin-
ciples do govern Christians that tend to
give us a model of the Christian home.
As a specific example, consider that the
married spouses are male and female.
This may seem rudimentary to you, but
when you consider that ho:inOsexuals
are presently petitioning the IRS for re-
cognition of their co-habitation as
mate grounds for the favored status
of "married f.t.ling jointly," even this is . .
not rudimentary any more.
Larry Ball ls pastor
of abe Bridwell
Heights
Presbyterian
Church (PCA) In
Kingsport,
Tennessee. He Is
also a CPA and
works part time as
an accOURtaht.
A number of Christian couples may
be categorized as YUPPIES {Young Ur-
ban Professionals), but generally they
are not DINKS (Double Income - No
Kids). The Christ-centered family will
often consist of several children which
usually necessitates the mother working
in the home. They have learned to live
on one income (uriless, of course, they
have a home business). Because they
tithe and possibly send their children to
a Christian School, they have less net .
spendable income than others with a
comparable wage or salary.
How then will TRA 86 affect the
Christian family? There is both good
news and bad news. There are some
changes that will be helpful for your
family, but Congress has mixed some
bitter in with the sweet.
One of the negative aspects about
TRA 86 is simply that it was enacted.
Biblical Christians believe in long-term
planning. For long-term planning to be
possible we must have confidence in
the stability of our laws. When laws
change, then our plans and strategies
must change. Who has any desire to
play the game when the umpire keeps
changing all the rules? A constant
changing of the tax laws creates havoc
not only for accountants and tax pro-
fessionals but for all of us as well.
TRA 86 is just another step in the direc-
tion of a nation that encourages its .
people to look only at the short run.
. Unfortunately, 1RA 86 also is a con-
tinuation of the civil government's inva-
sion into our privacy. To get the per-
sonal exemption deduction for your
children yoti must now register with the
United States Government every child
five years or older. Registration is not a
popular idea among Christians who be-
lieve in the biblical parameteiS of a
limited civil government. Tax-shelter
registration was already a part of the
0
IRS Regulations before TRA 86.
The eyes of Uncle Sam are straining
for an even closer look into our per-
sonal lives. Real estate transactions
must now be reported on a Form 1099.
As a result of the new tax law, tax-
exempt interest must now be listed on
Form 1040.
There will be increased expectations
in regard to record-keeping. Many con-
tributors to IRA's will be required to
keep more detailed tecords of their con-
tributions, distinguishing between de-
ductible and non-deductible contribu-
tions. Withdrawal of funds from IRA's
may become a bookkeeping nightmare.
The regulations for claiming entertaiil-
nient expenses on Form 2106 are more
stringent and therefore will require more
detailed veriftcaU.on. The entertainer had
better be able to prove he had a "sub-
stantial and bona fide business dis
cussion." {Maybe he could take a tape-.
recorder along.) Even though the
gains deduction has been repealed the
record-keeping requirements are still
tact. Because of these numerous
tions perhaps the reader may now under-
stand why some are suspicious of the
claim that 1RA 86 is to be a
tion. It is almost becoming impossible
for some tax-payers to do their own re-
turns without professional help.
Page 22---------------------------The Counsel ofChalcedon, March, 1988
J
Even though the number of tax brac-
kets are reduced and tax rates are down;
TRA 86 has not been so charitable to
everyone. Before TRA 86 those out of
work and receiving unemployment com-
pensation were generally only partially
taxed on that income. Now under the
new tax law all of their unemployment
compensation will be taxed. There is
nothing like kicking a man when he is
already down.
If you have a son or daughter in
college on a scholarship, part of the
value of that scholarship may now be
taxable. For grants made after August
16, 1986, degree candidates may not ex-
clude from income scholarship amounts
received after 1986 for room and board
or travel.
During the last several years non-
itemiz.ers have been allowed a deduction
for charitable contributions (the tithe
for Christians). Now this will only be
allowed for those who are able to item-
ize. Since Christians give benevolently
because of the tithe requirement and not
because of tax deductibility, this will
have little effect on their giving. How-
ever, the benefit of this deduction will
be taken away from many Christian
families because it is becoming more
difficult to itemize (a higher standard
deduction with increased thresholds for
medical and miscellaneous expenses).
Sometimes unrecognized in the
discussion about reduced tax rates is the
increase in social security withholding.
Uncle Sam often gives you a dollar in
one hand and takes two from the other
hand. Most tax-payers will see a five
percent (5%) increase in the amount
withheld from their paychecks for social
security. Those with incomes over the
$45,000 limit will see an eight percent
(8%) increase over last year's social
security withholding because of the rise
in the rate and an increase in the upper
limit Remember, too, that the em-
ployer must match that increase. 'The
self-employed (including your pastor
who did not opt out of the Social securi-
ty System) will have to pay the full
percentage without .any matching funds.
There are many other negative as-
pects of TRA 86 which I will not men-
tion here. Business enterprises have
been affected much more than in-
dividuals. The repeal of the dividends
deduction along with the repeal of the
capital gains deduction was not a
favorable move to encourage invest-
ments in American COIJXlrations.
You may now be asking if there is
anything positive about TRA 86 for the
Christian family. The answer to that is
yes! For example, the federal govern-
ment has finally decided to give a break
to those with children . or other de-
pendents. The personal exemption for
yourself and your dependents has
increased from $1,080 to $1,900 for
1987 (to $1,950 for 1988 and to $2,000
for 1989). The standard deduction rises
to $5,000 for 1988 (married filing
jointly). This means that a married
couple with five (5) children will
subtract $18,650 from their adjusted
gross income for 1988 before applying
their tax rate (7 x $1,950 + $5,000).
That adds up to quite a savings.
Even though depreciation schedules
have been changed to slow down write-
offs of assets used in a business (the
wife's home business), the special frrst
year expense allowance (Sec. 179) has
been increased from $5.000 to $10,000.
1be consumer interest deduction is
being phased out over a four year period
(you still can use 65% of your interest
as a deduction on your 1987 Schedule
A, so don't throw away all those credit
card statements). This may help curb
the debt problem among Americans;
but, because the home mortgage in-
terest deduction remains intact, many
have put their own homes into a greater
risk category by borrowing against it
Thus rather than encouraging a reduc-
tion of debt, TRA 86 has only encour-
aged a shift in debt from one type to
another.
In conclusion, there are some posi-
tive effects of TRA 86 for the Christian
family (especially those with several
children), but when weighed against
other factors, this new law may in the
long run be detrimental to our freedom
and economic well-being.
I have tried to summarize a few obser-
vations here to help you understand the
impact of TRA 86. For your own in-
dividual situation you may need to con-
sult a good tax accountant. (Articles on
taxes should always have a disclaimer
to protect the writer, and I am no ex-
ception).
Reconstructionists need to study the
principles of biblical law so that we
may be able to impact civil government
in years to come and bring the whole
tax field (legitimate as it is) into sub-
jection to the truths of the word of God.
0
The Counsel of ChaJcedon, March, 1988 ;..-..--------------------------_.age 23