The 2017 tax reform legislation ushered in sweeping tax code changes for corporations, small business clients and individuals. Despite this, the tax changes that apply to individual taxpayers and pass-through entities are largely temporary, and are set to expire after 2025 unless Congress takes action to extend them.
A new bill has been introduced in Congress proposing that these tax code changes be made permanent now, while the Republicans still have control over the executive branch and the Senate. The results of the midterm elections left the Democrats in control of the House, meaning that this legislation will be more difficult to pass.
We asked Professors Robert Bloink and William Byrnes, who are affiliated with ALM’s Tax Facts, and hold opposing political viewpoints, to share their opinions on the odds that the new legislation will be passed to make the 2017 tax reform legislation changes permanent, and how the bill’s passage could potentially impact both individual and small business clients.
Below is a summary of the debate that ensued between the two professors.
Byrnes: We need to make 2017’s tax code changes permanent for all taxpayers. The corporate changes and many changes benefiting the wealthy were made permanent from the get-go—I don’t see any reason to maintain the temporary nature of the individual and pass-through tax breaks.
Bloink: It’s way too soon to be talking about making these tax code changes permanent. The 2017 tax reform legislation was passed less than a year ago, and we have no idea what the long-term impact of these tax code changes will be.
Byrnes: I think we’ve already seen the positive impact of tax reform at all levels of society—job growth is strong, people are earning more and businesses are incentivized to expand and invest. A healthy economy is good for everyone, and by keeping the individual and small business tax breaks temporary, we’re really punishing the ordinary American worker and small business owners—the exact people we want to help.
Bloink: Professor Byrnes overlooks the fact that the Section 199A small-business tax “break” is so extraordinarily complicated that many tax experts don’t quite understand all of the rule’s nuances. The regulations interpreting the new tax code section were even more complex than the law creating the small-business tax deduction. Before we make that permanent, we have to make it work for the small-business owners who can’t afford to hire a team of tax experts to determine whether they even qualify for the pass-through business tax break.
Byrnes: What’s complicated for taxpayers is the uncertainty of the new law. When tax breaks are made temporary, it’s usually because of a compromise between the two sides of Congress, but it doesn’t really benefit the average American business owner. How can a small-business owner justify planning to maximize the value of this huge new tax break if they don’t know how long it will be in effect?
Bloink: Professor Byrnes is right—the new tax rules were made temporary because one party in Congress recognized that these tax breaks have to be paid for somehow. We have taxes for a reason, and adding so significantly to the deficit isn’t good for anyone. In fact, the only way the Republicans were able to pass this new legislation without any Democratic support whatsoever was by making sure that the law didn’t increase the deficit by more than a certain dollar amount.
Byrnes: We already have a set of “extender” tax code provisions that Congress has to act to extend every year. Individuals and small business owners have a hard enough time planning without knowing whether their efforts will be rewarded in the next year. The tax reform changes are different. Here, we actually need certainty because we’re talking about the most basic of tax rules—even the new income tax brackets are temporary. If the tax breaks are truly going to have the maximum benefit for the everyday American, they can’t be schedule to expire in just a few short years.
Bloink: Again—we don’t even know how some of these tax changes will operate yet, so how can we know who will really benefit from the changes. In my view, the Section 199A deduction has created a lot of space for creative planning even after the overly complex proposed regulations were released. Encouraging taxpayers to spend time and money tax “strategizing” is not the most productive for anyone. Before anything in the new tax code is made permanent, we need certainty and clarify within the rules themselves.
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