Tax Reform Faces an Uphill Challenge

Tax Reform

Many Americans are eager to enjoy the across the board tax rate cuts that President Trump promised so frequently during the election. There are numerous Republican law makers that have said their top priority is a large tax cut. House Speaker, Paul Ryan, and Ways and Means Committee Chairman, Kevin Brady, have prepared a detailed tax reform plan. The proposed plan is splitting the Senate and House Republicans, as well as the business community to which the plan is designed to help. It is not certain what President Trump’s position is on the plan or when it will become clearly stated. The biggest hurdle slowing down the proposed tax cut is whether and how to repeal Obamacare, which itself is mired in political debate.

In order to write a new budget, it is necessary to resolve the costs and tax implications of this legacy health plan.  Congressional Republicans state that they hope to have the foundation of a big tax cut package outlined by late spring or early summer. This is a substantial legislative task and these programs often take years of incubating within the Congressional walls before being passed.

At some point it is likely there will be a tax plan in place; however, three major complications stand in the way:

  1. Repealing Obamacare

Republicans have made repealing Obamacare the first order of business in taking control of the government.  They are in debate as to the next steps.  Does it mean a repeal and replace of Obamacare, or something else? Differences in opinions and obstacles along the way have been making it a challenge in completing this next step.

A few questions that come to mind when thinking of this process: Can Obamacare really be repealed before it is replaced, or does the replacement have to be done concurrent with the repealing to avoid leaving millions of Americans being uninsured and in limbo?

  1.  Problems with the proposed Ryan/Brady plan  

The House Republicans’ plan is built upon the Border-Adjusted Tax.  This would essentially tax imports into America while leaving untaxed exports from America.  The Border-Adjusted Tax would also raise an estimated $1 trillion over the next decade to finance broad cuts in the corporate tax rates without exploding a deficit.  However, this issue is splitting the American business community between companies that emphasize exports and those that benefit from imports.  With the difference of opinions, the lobbyists are working hard to state their cases and protect their constituents. Politically, the idea is generating significant opposition among Republicans in the Senate since it is the businesses they support who could be hurt the most.

  1. Uncertainty about White House Strategy

President Trump has said repeatedly that a tax reform plan is in the works, but as of now, it is not clear what that means and how the plan looks.  With the unknown plan, there are some questions that remain: Will the White House offer a detailed plan or only principles? Will it propose reforming personal, as well as corporate tax rates; and will the White House be concerned about adding to the deficit or not?

As you can see, we are in for a long, difficult ride in realizing the promised tax cuts.  It is challenging to plan ahead in these times of uncertainty.  Instead of sitting back and waiting to see where things fall, we recommend moving ahead with corporate and personal planning – knowing adjustments will be needed once there is clarity in the tax reform.  There is bound to be change, and in the next decade we will likely be seeing it many times.  During this time of uncertainty, please let EBN know if we can be of any assistance.