U.S. businesses and individuals are, for the most part, hopeful of tax reform legislation this year as both the White House and U.S. Congress are focused on improving productivity and growth. With the GOP in control of the White House and both the House and Senate, it appears that comprehensive tax reform may be within reach. Some pundits are hopeful that we may see tax reform legislation by mid-to-late spring, and a bill on the President’s desk before the August recess.
Paul Treinen, a tax accountant and partner with White Nelson Diehl Evans LLP, agreed that tax reform may actually become a reality in the near future. Paul offered the following thoughts on pending tax reform:
- President Trump’s tax plan published in November 2016 was vague. This was preceded by a House Republican plan in June 2016. Both the President’s and the GOP plans attempted to reduce individual tax brackets into three main brackets. The top bracket was targeted at 33% for federal purposes. This is 6.9% lower than the current highest federal rate of 39.6%.
- While President Trump has discussed lowering corporate tax rates from 35 to 15%, the GOP plan was “a little less lofty,” seeking to reduce corporate tax rates from 35% to 20%.
- Both President Trump and the GOP have discussed a specific tax rate on “pass through” income. Under President Trump’s proposal, there is a proposed 25% tax rate on “pass-through income”. Business income was broadly defined as income earned by small businesses, including sole proprietorships and other pass-through businesses (partnerships, limited liability companies and S corporations). Paul said that “reasonable compensation would probably be at the forefront of discussion as it pertains to this carve out.”
- There has been some “chatter” about repealing the Alternative Minimum Tax (AMT), this would probably be music to the ears of our clients.
- If lower tax rates were to become a reality, a reduction of some sort would potentially occur with itemized deductions.
- The fact that President Trump, Speaker of the House Paul Ryan and Senate Majority Leader Mitch McConnell have all put tax reform at or near the top of their priority list is very encouraging for our clients. The fact that this is not a split House or Senate suggests it may actually come to fruition. However, new tax reform will not come without its challenges, as evidenced by the recent Democratic Party push back on Cabinet nominees and executive orders.
- There has been a fair amount of talk about using budget reconciliation to pass the president’s and GOP’s agendas. This process calls for expedited considerations of tax, spending, and debt limit items. In the Senate, reconciliation is not subject to filibuster. This is interesting because it would allow the Senate to quickly pass reconciliation bills with a simple rather than a three-fifths majority.
- In early February, after the GOP leaders’ Congressional retreat, they indicated they wanted a repeal of the ACA by March or April 2017. Speaker Ryan said that Republicans would tackle tax reform in the spring of 2017. Paul observed, “It seems that there has been more talk about focusing on repealing the ACA than there has been about tax reform, at least of late.”
Paul concluded, “Although nothing definitive has been released, it appears that there is more of a concentrated effort than ever to engage in meaningful tax reform in 2017.”