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By Michael T. Lahti
It seems as if the perfect storm for some serious tax reform has arrived. Consider this; for a long time political gridlock has made tax reform impossible. But now, with Donald Trump as president-elect, and with majorities in both the House and Senate, the chance for substantive tax change is almost a certainty. That is not to say that passage of a sweeping tax reform will be easy, with two noteworthy nettlesome issues, they being a lack of money, and special interest politics.
As mentioned in Tax Analysts Tax Notes:
“And unless Congress is going to completely abandon revenue neutrality -- which is highly unlikely, unless Republicans embrace unbridled stimulus -- there are many popular tax breaks that will be unable to escape scrutiny if Congress wants significant rate cuts... We are talking, for example, about last-in, first-out accounting, like-kind exchanges, the low-income housing credit, deductions for state and local taxes, and some deductions for interest on business loans all being on the chopping block. This means lawmakers will fight for their local interest in battles where party affiliation will count for little. It also means Trump will almost surely have to compromise on his plan to lower the corporate rate from 35 percent to 15 percent and the top individual rate from 39.6 percent to 33 percent.
Of interest to our clients might be whether the federal estate tax will be repealed. Lawmakers might have a difficult time justifying repeal when so many working class constituents are struggling.
Republicans will be anxious to see whether retaining Rep. Paul D. Ryan (R-Wisconsin), as speaker of the House will help or hurt tax reform efforts. Ryan doesn’t seem to have the best relationship with Trump. However, notwithstanding their past problems, Ryan recently praised Trump by saying the president-elect could expect to lead a unified government.
Other things to keep in mind are that Trump can affect taxes through more than just legislation. For instance, Trump's choice for Treasury secretary will be important. It will be interesting to see, with his close ties to Wall Street, if he appoints an individual expert in finance rather than tax. In addition, during 2018, he will have to appoint a replacement for IRS Commissioner John Koskinen. Perhaps Trump might have more success than President Obama in persuading Congress to expand IRS budgets, in order to raise revenue through enforcement, rather than overt tax increases.
There are many balls up in the air; but one thing is certain, and that is things should change soon. We will keep you posted…