Tax Reform: where art thou?
Tax Reform: where art thou?
“I'm here to tell you - we are going to get this done in 2017.” House Speaker Paul Ryan said when asked about the prospects of tax reform in 2017.
It was 30 years ago that the tax code underwent a massive overhaul under the umbrella of “simplification.” This was before economic globalization, the internet, e-commerce, debit cards and online banking. Many years later, the word “simple” is not one to be associated with the current system of rules, exceptions, enumerable tax brackets, alternative tax systems (i.e., AMT), regulations, revisions, extensions, repeals, and what some consider anti-competitive provisions.
For these reasons, and many more, there is hope that in the coming six months Congress can begin to truly simplify and make competitive the way in which we tax our citizens.
What do we know?
It’s been a long process of talking points, promises, threats and vague pronouncements. However, there are several things that we know for certain:
1) We know that a group that includes Speaker Ryan is working on reconciling differences between President Trump’s tax plan and Congress’, including U.S. Treasury Secretary Steven Munchin, White House economic adviser Gary Cohn, Senate Republican Leader Mitch McConnel, House Ways and Means Committee Chairman Kevin Brady, and Senate Finance Committee Chairman Orrin Hatch and their respective staffs.
2) We know that the timeline for offering up legislation would be shortly after the August recess for a fall debate and revisions. It is possible that a portion will be addressed during the extended summer session, but not likely with health care and the debt ceiling priorities.
3) We know that the Senate is strongly considering maintaining the 3.8% tax on investment income and the 0.9% Medicare tax for persons earning over $250,000. This will be a source of great debate.
4) We know that initial legislation introduced to repeal the Affordable Care Act (ACA) by both the House and Senate does away with most of the taxes attached to Obamacare.
Individual Reforms:
There’s a lot, but the main items of attention are the call for eliminating the estate tax and the alternative minimum tax (AMT), retaining tax provisions that favor homeownership, charitable giving, and retirement savings, and increasing the standard deduction. Included in these changes is a desire to simplify (reduce) the tax brackets.
Business Reforms:
Reconciling the contradictory interaction of individual and corporate tax issues is a goal. More specifically, most small businesses file as individuals at rates that are higher than the top rate applicable to large corporations.
What about Obamacare taxes?
As it relates to taxes, the initial Senate draft of a new healthcare bill to replace/repeal Obamacare looks similar to the House version in that they both repeal many of the ACA taxes, such as a penalty tax for non-coverage, indoor tanning service tax, and the medical device tax, to name a few.
The one exception to tax repeal is the Cadillac tax that applies to high-cost health plans. Both the House and Senate health plans would keep this tax around until 2026. Why? A probable reason is the significant amount of tax revenue it is expected to raise to offset the drop in tax revenue of repealing the other tax measures.
