Tax Reform Watch: What Are We Really Getting?– December 15, 2017 by Tracy Monroe

It appears we are truly on the cusp of sweeping tax law changes and cuts. Notice that I did not refer to this as “reform,” because the versions of the Tax Cuts and Jobs Act currently in the House and the Senate have, in some areas, shifted back to much of the same old rules with new twists.
 
At a press conference held on Wednesday December 13, 2017, the President acknowledged that Congress reached an agreement and he was hopeful we would have “a giant tax cut for Christmas” that will generate more jobs, higher wages and massive tax relief, particularly for the middle class. Several families from Pennsylvania, Ohio, Virginia and Washington talked about what tax reform would mean to them, and the President stated that the IRS believes taxpayers will start seeing larger paychecks as early as February 2018. Arguably, the tax savings will come from updated withholding tables that will reflect the new individual tax rates.
 
But one of the most interesting details to me is that, in his press conference, the President no longer referred to taxpayers as being able to complete their returns on a postcard, but instead referred to preparing their tax returns on a single piece of paper. This distinction, albeit small, is important. It tells me that the core principal of simplifying individual taxes is something Congress has somewhat lost sight of throughout this process. It’s true that both the House and Senate versions of the bill aim to simplify by offering a larger standard deduction, which would mean fewer taxpayers will need to itemize. However, with great pressure from the coasts, the House bill contains a $10,000 cap for real estate taxes, while the Senate provisions do not allow for state and local tax deductions except in connection with a trade or business. Additionally, neither bill repeals the net investment income (NII) tax and, remarkably, the Senate bill proposes to retain the individual alternative minimum tax (AMT)!
 
It can be argued that the reason for the proposed retention of the NII tax and the individual AMT is because the current version of the bills project a 10-year, $1.5 trillion deficit and is in obvious need of revenue. In fact, in the details released as of December 14, the corporate tax rate was stated at 21% instead of the 20% originally in both bills and higher than the 15% rate the President had wanted. It’s estimated that for every 1% increase in the corporate tax rate, the revenue projection increases by $100 billion over 10 years. The top individual tax rate has been rumored to be at 37% or higher.
 
We expect to have more of the details soon, as it is likely that both the House and Senate will vote on a unified bill next week, just in time for a special Christmas delivery. 
 
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