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Monday, April 3, 2017

Trump Tax Reform Update #4

Takeaways from Trump Tax Reform Update #4

  • Legislative loss on healthcare may make tax reform even more difficult
  • Chairman Brady, House Ways & Means says his committee will go BIG on tax reform, not just tinker with tax laws
  • Offsets to tax reductions which will bring revenue into the government may be more important than ever, Republicans look for ways to replace the $1 Trillion they hoped to get in revenue savings under repeal of Obama care
  • Look for discussions on new tax basis rules and possible new capital gains tax on death
  • Expect new legislation to be done under reconciliation with perhaps a 10 year sunset

Trump Tax Reform after Healthcare Loss

This past Friday, the Trump/Ryan healthcare reform legislation was pulled before it came to a vote when it became clear that the Republicans in the House didn’t have the votes to pass the legislation. Now the administration is moving on to tax reform. A number of news commentators and even some members of Congress have said that the failure of the healthcare repeal and replacement of Obamacare means that meaningful tax reform will be all the more difficult to accomplish.

This past Sunday on the Maria Bartiromo news program on Fox, Kevin Brady, Republican Chairman of the powerful House Ways & Means committee announced his core positions on the upcoming tax reform. He spoke confidently that tax reform will be bold, big and it will focus on promoting growth and simplifying the tax code. Brady noted that the last major tax reform bill was President  Reagan’s 1986 tax legislation. He said there is a reason  that  major  tax reform legislation only happens every thirty years or so and the reason is that meaningful tax reform is very difficult to accomplish as taxes affect every aspect of the economy, and there are competing constituencies which either benefit from or are disadvantaged by changes to the code.

House Republicans - Five Years Work in Tax Plan

Chairman Brady also said that his committee has been working on their proposed tax reform legislation for five years, in contrast to criticism that the House healthcare reform legislation was drafted in a few weeks to a couple of months.

Brady repeatedly pointed to a key goal of tax reform - making American businesses competitive in the global markets. This was a clear reference to reducing the current 35% corporate federal tax rate, among perhaps other items of potential tax reform such as the proposed border adjustment tax.

Trump has stated repeatedly that he wants a 15% corporate tax rate. Bartiromo mentioned the fact that many observers credit discussion of a 15% corporate tax rate as a driving force behind the substantial gains in the capital markets in the US since January of this year. However, most observers believe the House plan may only go as low as a 20% corporate tax rate. This is generally considered a reality constraint under the need to minimize budget deficits which may be exacerbated by marginal tax reduction for both corporate and individual tax cuts.

Border Adjustment Tax Sets Up Battlefront

As to the proposed boarder adjustment tax, there have been a great many news reports that the Republican Senate has strong opposition to what is also referred to as an import tax. Senator Tom Cotton and others have said there is little support in the Senate for the border adjustment tax, but Chairman Brady said Sunday, the border adjustment tax which taxes imports rather than exports, is an essential component to the core principals of growth of the US economy and tax fairness. The border adjustment tax appears to be a point of strong disagreement among some Republicans and major retailers, like Walmart, who appear to be determined to oppose it. One may note that Senator Cotton represents the State of Arkansas, home to the retail giant, Walmart.

Chairman Brady made no mention of the potential repeal of the Estate Tax or the Generation Skipping Transfer Tax. The fact that host, Maria Bartiromo raised no questions on the repeal of those two taxes may be an indication of either their lack of significance or absence of controversy surrounding their repeal. As to process, some commentators believe that the failure of  the healthcare legislation makes it all the more likely that the Republicans will try to pass the tax reform legislation through a legislative technique known as reconciliation (see prior tax updates at www.theduffeylawfirm.com for explanation). Recall, if reconciliation is utilized it is likely there will be a sunset at some point, perhaps 10 years in the future unless the legislation is revenue neutral.

Brady focused on reduction from the current seven marginal tax brackets to three marginal tax brackets, expected to be 12%, 25% and 33%. The Ways & Means Chairman also stated that under the new tax reform, 9 out of 10 Americans will file their tax returns on a form no larger than a postcard.

Tax Reform – Retroactive to January, 1, 2017?

One element of the healthcare reform failure that Chairman Brady commented on was the one trillion dollars in savings that the Republicans were counting on in order to offset tax cuts under the tax reform legislation. Congressman Brady stated that although this would present a significant challenge to his committee’s tax reform package, he said nothing will stop the Republicans from getting tax reform this year, and the tax reform measures will be retroactive to January 1, 2017. We’ll see.

For more information on the Trump and Republican tax reform legislation and how it might impact your estate plan please visit our website at www.theduffeylawfirm.com and click on our Resources link.

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