01 Sep Trump Tax Reform, Nothing Firm Yet
One of the priorities of the Republican Party has always been tax reform. Now that they control the White House, Congress and Senate, tax reform might seem certain. However, when it comes to tax reform, nothing is certain.
Tax Reform Under the Republican Party
A lot of people have been looking forward to getting a break on their taxes once the Republican party came to power. Republicans have historically been more keen to implement tax reform than Democrats, after all. Even Trump himself promised to lower taxes during his campaign.
The goal of House Republicans was to lower individual rates and business rates, which would result in the elimination of some of the more targeted tax incentives as a trade off. This could result in corporate rates potentially dropping below individual rates. The idea is that businesses get some tax relief, which in turn allows them to hire more employees at better wages.
However, the drawback to the plan in its current iteration is that it could pose problems for pass-through businesses, which accounts for 80 percent of all businesses. Pass-through businesses have their income taxed at the individual level. To counter this, both Trump’s platform and the House Republicans’ platform would have special rates that are lower than what the top individual rate would be that could be applied to pass-through income.
Trump has been a proponent of repealing estate taxes. However, there are a lot of hurdles that have to be overcome when it comes to an estate tax repeal, and experts believe that people should not stall their estate tax planning at the current time. He has also expressed the idea of letting multinational corporations repatriate trillions of dollars in profits that they are holding overseas, letting them bring that money back into the U.S. at a lower tax rate.
Another thing the GOP has advocated has been the repeal of the alternative minimum tax, or the AMT, on both corporate and individual levels. However, Republicans do want to preserve a current restriction of the AMT, which only allows the use of 90 percent of one’s net operating losses against income.
But many believe that the GOP needs to focus more on middle-income taxpayers. While investment income rates, estate tax repeal and multinational income rates are all tax reform subjects the GOP has long been focused on, the GOP’s base consists of more middle-income voters. Many argue that a tax reform plan should benefit them directly as well. One thing that Trump has pushed for that would affect those middle-income voters is a tax break that would help families to afford caregivers, such as for eldercare and childcare.
Passing Tax Reform
The problem with many of the tax reform ideas and proposals promised by both the GOP and the President is that many of them were campaign trail promises. While they may try to uphold these promises, enacting tax reform as law can be extremely difficult. Cost constraints and technical issues will come up, which may cause many of these proposals to evolve or change. There’s also likely to be a lot of pressure from special interest lobbyists.
It’s also worth noting that when the Democrats were in charge, they were ultimately unable to complete some of their major tax reform goals due to the need for 60 votes in the Senate.
While there are a lot of plans for tax reform, nothing is set in stone until something is actually passed, which means it’s best that everyone just waits and sees without preemptively planning for change.