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Financial Planning > Tax Planning > Tax Reform

Tax Cuts to Happen in ’17, but Not Reforms: Andy Friedman

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“We will see a tax cut this year and maybe reform,” Andy Friedman of the Washington Update told a crowd of about 2,000 independent advisors and 2,000 other guests Thursday at the Raymond James national conference in Orlando.

His remarks came one day after the White House unveiled a plan to drop the corporate tax rate to 15% from 35% and simplify individual tax rates.

The veteran political commentator and popular speaker says the tax reform process is highly controversial. “Tax simplification is very complicated stuff,” explained the Washington, D.C.-based analyst and former tax attorney.

(Related: White House Unveils Trump’s First Tax-Cut Bid)

“Keep an eye on this,” he said, adding that the battle for tax reform this year will be “very, very tough. But at least we should see a tax cut, … and we could see retroactive rates that go back to last January.” 

As for the precise level of the new corporate rate, Raymond James Chairman and CEO Paul Reilly believes that the 15% will not go through.

“That is a very big cut,” Reilly said in an interview. “Fifteen percent is pretty low, so will that proposal be used to negotiate a different figure? We will see. There appears to be bipartisan support in the mid-20s.”

Trump also proposed a lower tax rate for pass-through entities, like S-Corps, partnerships and LLCs, which could potentially mean some independent advisors (and teams) could see their business taxes fall to 15%.

“That S Corp. proposal was a bit of a surprise,” Reilly said.

Friedman says the pass-through plan “is a very generous provision.” The House of Representatives, he adds, wants it taxed at 20%

Financial Sector

“This is a good time for our industry,” Friedman explained, before turning to the onerous topic of the Department of Labor’s now-delayed fiduciary rule.

“To change it, you have to go through the same process that [first] put it in place,” he explained, which is lengthy and entails multiple steps. “We should see it get pushed back [from June 9] to figure out what to do with it.”

What might happen next? “My guess is that it will keep getting pushed back, and we should see some changes to the most egregious parts, such as the class-action part, which is too egregious,” the Beltway insider said.

Reilly agrees, arguing the arbitration system for clients who want to take action against advisors “has worked out well, generally speaking.”

In contrast, the DOL rule mandates class-action lawsuits, which “will increase costs,” the executive says. “We worry that these costs will be pushed down and will [affect] small accounts,” for instance.

While Friedman anticipates the industry will get “some alleviation” from a few of the harshest aspects of the rule, he believes “the horse is out of the barn.”

The DOL rule and its varied elements “are now seen as the best practices [to follow] by some firms, and they will move forward with it either by being forced or will do so voluntarily,” he said.  

The actual implementation of DOL likely will be different than what it looked like before Donald Trump became President, “but we will have to deal with it one way or another,” Friedman explained.

He suggested that advisors watch out for what happens in September, if Congress doesn’t reach a budget deal Oct. 1. “There could be a buying opportunity [in the markets], and then things will get settled.”

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