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Financial Planning > Tax Planning > Tax Reform

House, Not Trump, Is Leading on Tax Reform

By Melanie Waddell

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House GOP action in unveiling the American Health Care Act on March 6 to replace the Affordable Care Act, or Obamacare, signals that President Donald Trump’s tax reform measures set out in his forthcoming budget are being dictated by the House, according to former Senate budget director William Hoagland.

“The lead here [in the GOP health care bill] is the House and their Better Way” tax reform proposal issued last June, Hoagland, a senior vice president at the Bipartisan Policy Center, told ThinkAdvisor on Wednesday. “With all due respect to the administration, I don’t see them playing as big a role” in tax reform. “[Trump is] missing some of his key people — ‘grunts’ that have to put this [tax plan] together.”

Hoagland added: “I expect similar kind of [House] action” dominating the tax reform measures included in Trump’s budget summary — or “skinny budget” — which is expected out this week.

“All of the action is in the House, and the House will take the lead [on tax reform] going forward” with House Ways and Means Committee Chairman Kevin Brady, R-Texas, in the driver’s seat.

That being said, “I do think this is a very uncertain time on tax reform that has a long way to go.”

Trump’s budget will likely take the form of a “skinny budget,” according to the Committee for a Responsible Federal Budget, which the committee describes as a “summary document often used by incoming presidents to advance their proposals before additional details are released later in the year.”

Hoagland also sees August as an unrealistic date to have tax reform legislation in front of the president, as Treasury Secretary Steve Mnuchin has predicted. “If it’s August for the House [bill], maybe,” he said. But “I’ve never seen tax reform on the president’s desk by August recess. Just no way.”

Lawmakers are talking about possibly passing tax reform under the budget reconciliation process, Hoagland notes, but “you do not get reconciliation authority until you pass a new budget resolution — you have to come to an agreement on a budget resolution” between both chambers of Congress. “So the first big hurdle is passing a budget — that’s not going to be easy.”

‘Making Tax Shelters Great Again’

Meanwhile, at least one senator is deriding Trump’s tax plan as skewing heavily toward making “tax shelters” for the wealthy “great again.”

While Trump vowed on the campaign trail to ensure that tax reform benefits the middle class, Sen. Ron Wyden, D-Ore., ranking member on the Senate Finance Committee, stated in a recent speech that Trump’s pledge to rein in carried interest, for instance, “turned out to be just another head fake.” Since the election, “there hasn’t been so much as a tweet about it,” Wyden said. “Apparently hedge fund guys ‘getting away with murder,’” Wyden quoted Trump as stating, “wasn’t quite enough, because instead of asking them to pay their fair share, the Trump plan gives them a 37% tax cut.” 

Wyden said in his Friday speech that when talking about carried interest, “you’re talking about capital gains. And when you talk about capital gains, you’re talking about the biggest tax shelter of all — the one hiding in plain sight.”

He noted the current capital gains tax rate is 23.8%. Republicans want to make it 16%. “So if you can take advantage of a gimmick that characterizes your income as a capital gain, your tax rate plummets. The White House and the majority party in Congress are working to make it even easier to get away with that gamesmanship,” Wyden asserted.

Another example is the “Trump infrastructure proposal — an 82% tax credit on the equity private investors put up for a project.”

Yet a third example of “making tax shelters great again,” Wyden said, is the dynasty trust, which he called “a gimmick that allows the most fortunate to avoid paying estate taxes not just for a generation or two, but forever.”

— Check out more from 23 Days of Tax Planning Advice: 2017 on ThinkAdvisor.

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