Say what?Financial jargon you might hear this election year
Watching political speeches, debates and Sunday morning talk shows can be like watching a foreign film without subtitles.
It often can be difficult to understand what they are really saying. Unless you have a degree in finance, the phrases used by politicians and pundits can be downright confounding.
If you don't work with financial terms every day, it's easy to get lost in a fog of words. So you know what candidates mean when they toss around these terms in their speeches, here's a primer of a few tax and financial phrases you might hear during the upcoming campaign season.
This system of laws, known as the Internal Revenue Code, describes how the federal government will tax individuals and businesses. The United States has one of the most complex tax codes in the world.
A loophole is any technicality that allows a person or business to avoid the scope of a law without directly violating it. With regard to taxes, loopholes usually refer to ways individuals and companies remove income or assets from taxable situations into ones with lower taxes or none at all. Using a loophole isn't breaking the law, but it is going around it in a way that was not intended by the regulators or legislators who put the law into place.
Corporate tax reform
At 35 percent, the United States has one of the highest corporate tax rates in the world. Some U.S. companies pay close to the 35 percent rate, while others pay a much lower rate as a result of tax breaks that let them lower their effective rates.
The corporate tax structure is a hot button that might be discussed during the presidential campaign.
Repatriation tax holiday
Some American companies keep large sums of cash in other countries because they do not want to pay the current 35 percent corporate tax in the United States. This cash either sits idle or gets used to build facilities and expand outside the United States. Legislators have floated the idea of a temporary "tax holiday" to allow companies to repatriate all that money at a significantly lower tax rate and get it back home.
A tax incentive is an aspect of the tax code designed to encourage a certain type of behavior. Tax incentives can apply to individuals or corporations. Incentives for individuals are the types of things you write off on your federal taxes, such as a mortgage interest or contributions to an individual retirement account.
Corporate tax incentives typically span federal, state and local governments, and they are included in the tax code. There might be specific incentives designed for individual companies, such as a sales tax exemption or a property tax abatement from a city for building and operating in a certain location.
Broaden the tax base
A broader tax base means lower tax rates can raise an equal level of revenue or that the same rates can raise more revenue. The important element here is applying a tax to a larger group. This is a concept that arose last fall as presidential candidates began discussing ways to raise revenue.
These are tax breaks that are not part of the permanent tax code. They are designed to be temporary, but often Congress extends them each year. Provisions that apply to both individuals and businesses include popular measures, such as the research and development credit for businesses and the optional deduction for state and local sales taxes for individuals.
Learning the lingo
Tax and financial terms can be vague, but understanding the jargon will help you interpret the information you're hearing from our lawmakers. You'll learn how the bigger picture affects your personal financial situation.
If you still have questions, talk to your financial adviser. To find a certified public accountant in Pennsylvania by location or area of expertise, visit www.IneedaCPA.org.
For more information about Pennsylvania Institute of Certified Public Accountants, visit www.ineedacpa.org.