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Financial Planning > Tax Planning > Tax Reform

Congress Back in Action With Kavanaugh Hearings, Tax Reform 2.0

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Fresh off its August semi-recess, Congress returned Tuesday to a raucous first confirmation hearing for Supreme Court nominee Brett Kavanaugh before the Senate Judiciary Committee, but other pressing issues on lawmakers’ plate include government funding, tax reform, trade and retirement planning legislation.

As those tuning in to the Kavanaugh hearings can attest, Democrats demanded more documents, as Greg Valliere, chief global strategist for Horizon Investments, noted in his Tuesday morning Capitol Notes briefing, “but they don’t seem to have enough traction to block him.”

(Related: Will the Market Crash if Trump Is Impeached?)

Said Valliere: “Unless Kavanaugh stumbles, all 50 Senate Republicans are likely to vote for him — with a few Democrats, facing tough re-election battles, leaning toward voting for him as well.”

Threat of a government shutdown also looms as Congress must fund the government by Sept. 30.

“Leaders of both parties want Congress to pass funding legislation,” Andy Friedman, principal at The Washington Update, told ThinkAdvisor in a Tuesday email message. “But Trump’s public statements have vacillated between signing funding legislation and vetoing to get approval for his wall on the Mexican border.”

Indeed, Valliere states in his Capitol Notes that because President Donald Trump has “vowed to never again sign an omnibus spending bill,” the Senate stayed in session for most of August and made “substantial progress on individual bills.”

However, the Senate bills include “big differences” from the House versions, “and Trump is still flirting with the idea of shutting down the government on Oct. 1 if he doesn’t get several billion dollars in funding for a wall with Mexico,” Valliere said.

Trump “may get a billion or two, which would avoid a shutdown and pave the way for enactment of spending bills that will totally ignore fiscal restraint,” Valliere added.

While Friedman expects a shutdown to be averted, “it is difficult to know with certainty what the president will decide to do.”

On the tax front, Republicans “will push hard for a ‘tax cut 2.0 bill,’” Valliere opines, “which could win approval in the House. But there aren’t enough votes in the Senate for a bill that would further cut corporate tax rates, index the capital gains rate to inflation and make last year’s tax cuts permanent.”

Adds Friedman: “Republicans might push the idea of a bill that would make permanent the individual provisions of last year’s tax act, currently scheduled to expire in 2026. Doing so would be a political maneuver during the run-up to the midterm elections.”

However, the plan “has no chance of passage in the Senate given that chamber’s filibuster rules requiring 60 votes.”

Valliere sees taxes as a GOP “campaign issue to use in conservative states, but the public in general is surprisingly unenthusiastic about the tax cuts.”

Passage could also be on the horizon for the Retirement Enhancement and Savings Act of 2018, S. 2526, which has bipartisan support, and, as Friedman notes, “would expand retirement savings opportunities and broaden the potential for annuities in employer-sponsored retirement plans.”

But, the bill does have a downside, Friedman said: “The legislation would curtail beneficiaries’ ability to ‘stretch’ distributions from large retirement accounts.”

Industry officials are also hoping that Trump’s executive order, signed Friday, on multiple-employer plans, or MEPs, and a Treasury review of required minimum distributions from retirement accounts, will spur passage of the RESA bill.

The bill also includes language to make MEPs more attractive by eliminating barriers to their use and improving the quality of MEP service providers.

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