Tax Reform Watch: Signs of Light at the End of the Tunnel?– October 27, 2017 by Tracy Monroe

It was awesome to speak on tax planning for individuals and businesses at the Ohio Society of CPA’s Cleveland Accounting Show this week. Like just about everyone, the group is anxiously awaiting the release of a detailed tax reform plan. There have been a number of recent signs that we should see one very soon.
As discussed in our September 29th blog, the Republican-led House Ways & Means Committee, Senate Finance Committee and President released the Unified Framework for Fixing our Broken Tax Code (Unified Framework). The Unified Framework is consistent with the prior vision outlined by the President and his advisors, and the GOP “A Better Way” blueprint — except this new proposal gives more details.
In other developments, earlier this week the House Democrats released their own framework for tax reform: “Real Reform for Real People.” Much like the Unified Framework, the principles in the Democratic plan are not aligned with specific numbers but instead focused on general goals. House Democrats want to strengthen the Earned Income Credit, Child Tax Credit, American Opportunity Tax Credit and Child Care Tax Credit. The proposal also includes a new tax credit for employers to train and hire new workers through apprenticeship programs and partnerships with community colleges and technical schools. This comes as the Republicans announce the tax reform bill will be released on November 1.
Another interesting and key development is that both the House and Senate recently passed a budget resolution. This will allow tax reform to be handled through the reconciliation process, which has the potential to speed up the process. However, the discussion of possible changes to the ability to deduct 401(k) contributions that made the headlines this week also gave us a glimpse at the complexity of the tax reform process using reconciliation. Republicans are looking for ways to increase revenue in the tax plan, and lowering the amount of tax-deductible contributions to 401(k) plans creates revenue for scoring purposes. The President has tweeted his opinion on the topic, stating:  “There will be NO change to your 401(k). This has always been a great and popular middle-class tax break that works, and it stays!” However, Republican leadership in the House and the Senate have said they haven’t ruled out changes to deductible 401(k) treatment.
Assuming all of these signs point to tax reform in the coming months, it is still very unclear when it would become effective. The IRS released drafts of 2017 forms last week that were prepared under existing tax rules. Redrafting new forms and instructions as well as updating technology for new rules will take time, even if a form 1040 is reduced to the size of a postcard. This causes me to reflect on a comment Congressman Jim Renaci made at our Client CPE day this past June. He said there was a real chance that comprehensive tax reform will not get enacted for 2017, and, instead, an across-the-board reduction in tax rates could happen instead. I found that hard to comprehend in June, but as I commented in my recent accounting show presentation, at this juncture I would say our chances are 50/50 of comprehensive tax reform this year. Perhaps the path will be a tax cut for 2017 followed by overall reform in 2018.
It will be interesting to study the tax reform bill next week, if released as planned. However, as we have mentioned previously and continue to tell our clients, it is not necessary (or recommended) to wait for more details before conducting your year-end tax planning. Plenty of opportunities exist regardless of the status of tax reform, so don’t get distracted by Washington! 
Sign up to receive our Tax Reform Watch series and follow as we chronicle the story of tax reform.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.