The Duffey Law Firm Blog

Friday, May 5, 2017

Trump Tax Reform Update #5

Takeaways from Trump Tax Reform Update #5

  • Trump and key Republicans still focused on Obama Care repeal
  • Mixed signals – but consensus seems to indicate no tax reform before September
  • Secretary Mnuchin  tells Financial Times August goal for tax reform is “highly aggressive to not realistic at this point”.
  • President Trump says, ‘we’re going to surprise you’ with speed of tax reform, but need healthcare fix first.
  • “and the beat goes on…”

When I was a kid, I never understood the appeal of soap operas. Week after week, nothing gets resolved, and the writers seem to stretch out the storylines to absurd extremes. Now we are all watching the tax reform soap opera, and there appears to be little promise for a quick resolution. Welcome to “As the Tax Reform World Turns”.

Big Picture – Trump and Republicans were counting on Healthcare Reform first – followed by tax reform

From all our sources it “appears that what was widely” reported in the media may have been true – at least with respect to the Healthcare – Tax Reform tandem.

  1. Trump/Republicans – expected to get approximately one trillion dollars in tax savings under Obama Care repeal
  2. Trump/Republicans – thought they had the votes to get their Obama Care repeal within the first 60 to 90 days of the Trump Administration
  3. With that legislative victory, coupled with a trillion dollars off the government books – coupled with a tax reform blueprint engineered by the Ways & Means Committee over last couple years – there was a great expectation for success

Healthcare Reform loss was a major hit to tax reform

Different pundits have different theories as to what are the big issues holding up the legislative process (other than Healthcare Reform miss- fire) on tax reform.

One theory that makes some sense to me focuses on President Trump’s management style. Notice on the Healthcare Reform, the White House appeared to let Speaker Ryan lead on legislative details, thus when negotiations with The Freedom Caucus and others came into play, the negotiations on what was in or out of the bill were largely in the purview of the Speaker and his Whip which left the key player or President on the sidelines.

President Trump and Mike Pence certainly made calls, and invited key players to the White House (remember the bowling party that was cancelled due to bad weather?). However, the detailed negotiations appeared to be centered in the Congress rather than in the White House. Some suggest this lack of symmetry led to collapse of talks.

Now, on the Tax Reform issue, reports from the Capital seem to indicate that President Trump is open to discuss a number of key issues (his negotiation tactics or strategies) but the starting point is the Brady Plan, “A Better Way Forward”.

The problem with this paradigm according to some veteran DC watchers, is there is no real ability to horse trade with President Trump because he has not laid out in detail what items he wants, what he will insist upon.

This school of thought suggests that one cannot get all the stakeholders to the table when the most important stakeholder (President Trump) has not clearly identified what is and what is not acceptable to him.

Thus in the last few days we’ve seen some trial balloons on; (a) border adjustment tax; (b) will homeowners keep deduction on mortgage interest? (c) Pass Through Entities like partnership and Sub-S corps and LLC may get a 25% income tax cap (assuming corporations get a 20% cap), and more.

So far, little national attention on the Estate Tax repeal and the Generation-Skipping Transfer Tax (GSTT) repeal, but general belief is that both these taxes will be repealed if Chairman Brady and the Ways & Means Committee draft the reform legislation.

On Friday April 21st President Trump announced a “major announcement” on tax reform for Wednesday, April 29th.

Stay Tuned!

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