On Monday, it was reported that President Trump has scrapped the tax reform plan he campaigned on and that the White House is working on a new plan. Press Secretary Sean Spicer disputed some of the reports, indicating the tax reform package presented during President Trump’s campaign still will be the backbone of the tax reform legislation.
With negotiations ongoing, the White House and Congress have suggested some key points that might be a part of any tax reform legislation.
- Tax-rate cuts. The White House and Congress have consistently discussed developing a tax reform package that will significantly cut tax rates for businesses and individuals. Although the details of which tax rates will be cut continues to be a matter for debate, tax-rate cuts likely will be the main component of any tax reform legislation. However, the challenge will be to develop a plan for lowering taxes without increasing the federal budget deficit.
- Tax law simplification. Simplification of the tax code has continued to be another capstone of proposed tax reform legislation. It appears likely that simplification will come from eliminating special interest deductions and credits in favor of instituting a broader cut to tax rates.
- Border adjustment tax. It remains to be seen if the administration will support the border adjustment proposals of the House Committee on Ways and Means. There is some talk of replacing the border adjustment proposals with other revenue-producing taxes, although President Trump continued to discuss a border adjustment tax during an interview on Wednesday. He referred to the proposed tax as a “reciprocal” tax. It is unclear if this tax would be similar to the border adjustment tax proposed by the House, or if he is suggesting retaliatory tariffs against countries that impose import duties on U.S. goods.
- Deemed repatriation of foreign profits. In the same interview, Trump indicated that he supported a deemed repatriation of deferred foreign profits at a reduced tax rate. It is unclear from the interview if the deemed repatriation would be limited to deferred foreign profits from prior years, or if it would also apply to future foreign profits. The House Ways and Means Committee tax blueprint has recommended a territorial tax system for foreign profits as part of tax reform.
- Payroll taxes. Some commentators have suggested that Trump’s plan could include a significant cut to payroll taxes to gain Democratic support for the plan. These cuts would counter arguments against his original plan, in which the majority of benefits would have gone to the top tier of individuals. However, a cut to payroll taxes would require new funding sources for Social Security.
Although tax reform legislation is a priority for the White House, the timetable is uncertain. Secretary of the Treasury Steven Mnuchin originally set a deadline of August for introducing tax reform legislation. However, while speaking in a Bloomberg Television interview last Friday, White House National Economic Council Director Gary Cohn acknowledged that tax reform may not meet the August deadline. Mr. Cohn stated, “Getting it done well and getting it done right is more important than getting it done soon.” In an interview on Wednesday, President Trump refused to clarify the timeline for tax reform, but he did indicate that he hoped to finish healthcare legislation before moving on to tax reform.
Tax reform legislation, if passed, might provide for either retroactive tax cuts for 2017 or prospective tax cuts for 2018 and beyond. Keep this in mind when planning for your tax situation in 2017, but remember not to let possible tax consequences unduly influence your decision-making process.