From repealing the estate tax and the AMT as well as Obamacare to reducing the corporate tax rate, advisors and tax planning experts predict that President-elect Donald Trump can move long-awaited comprehensive tax reform through next year with the help of the Republican-controlled Congress.
As Suzanne Shier, Northern Trust’s chief tax strategist and tax counsel, notes, Trump’s lengthy tax plan includes the following measures: reform the federal tax code by reducing marginal income tax rates for all individuals and businesses, increasing standard deduction amounts, repealing personal exemptions, capping itemized deductions, repealing the individual and corporate AMT, repealing the 3.8% net investment income tax (NIIT) and repealing the federal “death tax.”
However, “ambiguities still remain,” she points out, especially with regard to the “death tax” and pass-through business income tax proposals.
But Trump will have to iron out his tax plan with the House GOP one.
Indeed, Kyle Pomerleau, director of Federal Projects at the Tax Foundation in Washington, told ThinkAdvisor on Thursday that while Trump has indicated that tax reform would be “his first priority, it is unclear how long it would take.”
The House GOP plan and the Trump plan “have their similarities,” Pomerleau said, but “there are still a few details that need to be hammered out. Most obviously is the difference in the size.”
The Trump plan would cut taxes by up to $6 trillion over the next decade, Pomerleau said, whereas the House GOP plan would reduce revenue by $2.4 trillion. “The biggest reason for this difference is base broadeners, or what deductions and exemptions are eliminated. The Trump plan does not significantly limit, say, itemized deductions; the House GOP plan does.”
Pomerleau also points out that “there are also slight differences in how the plans treat businesses that would need to be figured out, especially in terms of how the tax code should treat pass-through businesses and the foreign profits of U.S. multinationals.”
Common ground in President-elect Trump’s tax proposals and the House GOP’s “A Better Way” tax reform proposal, also includes “overall simplification and rate reduction,” Shier told ThinkAdvisor.
“Both proposals would reduce the number of individual ordinary income tax brackets from 7 to 3, with a top ordinary income tax rate of 33%, repeal the 3.8% net investment income tax and the alternative minimum tax, lower the corporate income tax rate and repeal the estate, gift and generation-skipping transfer taxes (with a carryover of basis inherited assets for income tax).”
Areas for compromise and alignment, Shier noted, are in how capital gains are taxed, how itemized deductions will be limited, and how low the corporate income tax rate will go — 15% or 20%.
Russell Sullivan, a partner in McGuireWoods’ Washington office and a senior adviser to McGuireWoods Consulting, said that tax cuts are part of Trump’s economic growth plan, adding that Trump has promised to get growth up from its current 2%. Sullivan said he expects “an early and a big push” for an economic growth plan as “one of the first things out of the chute.”
“With Republican majorities in both houses of Congress, it’s more likely to proceed,” he said.