Click here to subscribe to RFG’s weekly emails.

Tax Reform Status

25 May 2017

We believe that comprehensive tax reform is uncertain at present, due to a number of other priorities facing the current Administration. There are some significant differences between the plans proffered by the White House and the House of Representatives, which may end in a compromise between the two plans. Based upon our view of the recent developments, we believe that that a compromise bill is fairly likely to be passed during the first quarter of 2018, and that it will likely lower top individual and corporate tax rates. However, we fear that the various compromises we believe will most likely be necessary to move the process forward – including the possibility, which we think is a likelihood, of combining tax reform with infrastructure investments, will mean that we are unlikely to see the truly comprehensive tax reform we believe the national system of taxation requires.

While we believe that the tax system badly needs comprehensive reform, it is our strong belief that this is not, nor should it be, an easy or a quick process. To effectively reform the U.S. tax system, in-depth studies and thorough analyses of the existing data are required, and should not be rushed. A well-thought-out, thorough, truly comprehensive bill would be far better than a hastily-cobbled, corner-cutting measure.

We await further details of the Administration’s proposal for tax reform. We believe more specifics should be forthcoming from Treasury Secretary Steven Mnuchin, hopefully in the near future.

What the Administration proposes:

• Reducing the current 7 individual income tax brackets to 3, 10%, 25%, and 35% (a reduction to the top rate from the current 43.8%)

• Reducing the top corporate tax rate from 35% to 15%

• Doubling the standard individual deduction

• Eliminating the individual itemized deductions for state and local tax payments

• Eliminating certain business deductions

• Eliminating the estate tax

• Retaining the individual deductions for charitable contributions and mortgage interest payments

• Eliminating the Alternative Minimum Tax (AMT) for both individuals and corporations

The House of Representatives’ proposals for tax reform also need more specificity, and debates are on-going, although the “Republican Blueprint,” originally released on June 24, 2016, is the basis for the House’s main alternative to the Administration’s proposal. Speaker of the House Paul Ryan said yesterday that he hopes that a comprehensive tax reform bill will reach the President’s desk before the December 23, 2017, Congressional Recess. The Administration and House plans have major areas of general agreement, as well as some differences.

What the House of Representatives “Blueprint” proposes:

• Reducing the current 7 individual income tax brackets to 3, with the top tax rate reduced to 33%

• Reducing the tax on small businesses to 25%

• Increasing the standard individual deduction

• Increasing deductions for child and dependent care

• Eliminating the AMT

• Increasing tax incentives for charitable giving

• Eliminating the estate tax

• Instituting a “border adjustment tax” on imports, and not exports

One significant sticking point is the Border Adjustment Tax (BAT), on which the Administration has backpedaled its earlier tentative support, while Speaker Ryan has been insistent that it be included. Representative Kevin Brady (R-Texas), who chairs the House Ways and Means Committee, is also supportive of the BAT. Yesterday, Speaker Ryan gave us the news that he can potentially envision tax reform passing without the BAT.

The possibility of a BAT has raised concerns among some House Republicans, and it appears that the Senate leans against such a tax. The Administration has acknowledged the appeal of a BAT, which under the House plan would impose a tax on imports. The offset would be that exports and other foreign sales would be made without those sales being subject to the BAT. However, the Administration, as well as some Senators and Representatives from both parties, contend that the BAT, in the form proposed by the House, is not a workable solution, and many businesses which import goods have raised serious concerns as well.

This difference in approach appears to be one of several which, at present, put comprehensive tax reform in jeopardy for 2017. Secretary Mnuchin has said that the Administration’s objective is to have tax reform passed during 2017; however, he acknowledged that this is unlikely to happen by the August Congressional Recess, which previously had been the Administration’s goal.

Secretary Mnuchin on Tax Reform

Plans for tax reform are further complicated by the fact that health-care reform, addressing the tax implications of the ACA, has not yet been passed. Although legislation toward addressing these tax implications was passed by the House, the Senate is still working on its own version of health-care reform legislation. As of yesterday, according to an estimate by the Congressional Budget Office, the health-care reform bill approved by the House would result in a potential additional 23 million uninsured, while reducing the deficit by ~$120 billion over the next 10 years.

Yet another twist came yesterday, as approximately 40 House Representatives from both sides of the aisle pledged support for bipartisan tax reform efforts, if coupled with infrastructure investments. The “Problem Solvers Caucus” believes that combining the two will draw more bipartisan support for tax reform.

The good news is that tax reform is gaining momentum – and bipartisan support. However, with the House, White House, and potentially the Senate and “Problem Solvers Caucus” all offering different solutions, the questions still remain:

What will tax reform look like? We believe that top tax rates for both corporations and individuals are likely to see significant reductions.

When will it be enacted? Possibly in late 2017, but we believe it is more likely to happen in the first quarter of 2018, although it could be made retroactive to 2017.

How will it affect you? If you are concerned as to how tax reform may affect you and/or your business, and would like to plan ahead, please call us at 504-586-3050.

Tax reform has the potential to affect many taxpayers, both individual and corporate. Call us today – we can help you position yourself to take advantage of tax breaks likely to affect you, your business, and your family, while protecting yourself under the current tax code.

Stay tuned to our blog for updates and commentary, as events unfold.

Blog Home

Newsletter Sign-up

Financial and tax planning tips and important updates from Rigby Financial Group – delivered right to your inbox!

Rigby Financial Group’s mission and focus is on listening to you, and creating solutions to help you achieve your goals

At Rigby Financial Group, we believe that our expertise in tax, accounting, business consulting and financial planning can provide much more than spreadsheets and tax forms. We focus on YOU, not just your numbers – because we believe that professional services should be tailored to your specific situation, and toward realizing your specific dreams. It’s that simple.


Rigby Blog

Industry insights from a seasoned financial professional.

Read the blog >

Get in touch!

Rigby Financial Group
715 Girod Street, Suite 200
New Orleans, Louisiana 70130

Toll Free: (866) 690-4961
Tel: (504) 586-3050

Copyright 2011–2024 Rigby Financial Group. All Rights Reserved.