Tax reform would be easy if it was only about BIG ideas. Unfortunately, when it comes to taxes, the devil is in the details. Currently, details seem to be holding up the idea of making tax reform real.
One of the key priorities of the Trump campaign was tax reform. Many debated whether it would — or should — be one of the top issues the administration would take on in its first one hundred days in office.
Instead of tax reform, it placed its initial bets on health care reform and taking on immigration issues. And while changes to healthcare have significant tax implications for individuals and businesses, the tax-related details included in the initial health care plan supported by Trump were scarce. This was an issue with Trump’s initial budget proposal, as well. It recommended significant cuts to services paired with increases in defense spending, yet was light on detailed information about tax revenue reductions or increases.
So far, the A Better Way plan from the House of Representatives, backed by Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady, has been the only significant blueprint for tax reform put forward recently. It advocates for three key things:
- Simplicity and fairness. The goal of the plan is to transform the tax code into something simpler, fairer and flatter. The reason for this is to make it easier for people to do their taxes and feel more confident that they’re getting them right. This will help them more accurately plan for their futures.
- Jobs and growth. The plan proposes ways to make it easier for businesses to create jobs, increase wages and expand opportunities for workers to find jobs. (This is good news for contractors and other small business owners.)
- A shift at the IRS. Another goal of the proposal is to transform the IRS so it provides a higher level of service to taxpayers.
One of the key sticking points about the proposal that has been extensively discussed is related to border taxes. The plan proposes to eliminate them for exports and maintain them for imported goods sold domestically.
This provision could have a significant impact on the economy overall and on business owners who depend on imported goods in their business dealings. (This could be a big issue for contractors who need to use imported materials on the job.) In addition, many in Congress are concerned that this aspect of the plan could provide greater long-term benefits to corporations rather than smaller firms, which would be unpopular with voters.
Further discussion about this – or any – tax plan has been pretty much drowned out in the House by other issues, including healthcare, Russian tampering in the election process, getting Cabinet positions filled and more.
The Senate is running behind the House when it comes to tax reform. This slower, more deliberative body has discussed the topic, but does not have a solid proposal for members to coalesce around.
The Trump administration is nearing the close of its first hundred days in office, and it seems unlikely that it will use its remaining political capital to actively pursue tax reform (although considering its unpredictability, this could happen).
So, what’s next when it comes to filling in the details of a future tax reform plan?
Once some of the current hot issues Congress is dealing with begin to settle down, the House will probably return to considering the A Better Way plan. It is likely that it will be passed by the body with some refinements to address the border tax concerns.
It will then move to the Senate, where it will again be refined, adding more defined and detailed provisions for things like:
- A corporate / business tax reduction
- An individual / personal tax reduction, especially for working families
- Changes to taxes on overseas earnings.
It is also possible that in order to get passed, the final tax plan will be based on artificially high revenue projections and a near-term increase in the deficit. Both of these factors could have significant negative economic and market impact if they’re not monitored and managed carefully. This is something contractors and other business owners should be aware of as they consider their long-term growth prospects.
Next, the proposal would go into conference late in the summer and be passed sometime in the fall. As of today, many of the details about tax reform have still not been discussed, much less worked out. That’s why it’s critical for individuals and business owners to stay alerted to changes ahead.
We’ll continue to provide our clients with information as we find out more. You can feel free to contact us at any time to discuss how the details of tax reform could impact you and your business in the future.