All the headlines in the tax planning industry press last week focused on the Trump Administration’s second release of information about their tax reform push. What his tax team gave us was an improvement over the previous release earlier this year, in that it expanded from a one-page outline to a nine-page document.
But details were scant in the Trump Tax Plan, aside from a wish list of revisions to simplify the tax code by eliminating a raft of deductions, reducing the number of tax brackets and doubling the standard deduction, among other interesting ideas. Difficult decisions about where to place the tax bracket breaks, for instance, or whether a fourth bracket for very high-income taxpayers, were all left to Congress.
In a perfect world, leaving the details to Congress is the right approach. Creating legislation is their constitutional job, after all. Unfortunately, we must factor in Congress’ ability to effectively get things done; and that has not occurred for the better part of the last decade. Nothing much may be accomplished this time, either, because the internal factions within the ruling party have very different ideas about what tax reform should achieve.
Lou Barnes, a mortgage banker in Colorado who sends out an excellent financial markets summary each Friday, offered a pretty good description of this new plan’s prospects.
“(Financial) markets did not react partly because there was nothing new, but largely because it is inconceivable that all of the principles as presented will pass into law, and no way to know what mix, if any will be enacted and to what economic effect.
He added an apt analogy about what sort of Frankenstein reform bill might come out of Congress, too:
“Any…mixture of new tax law will resemble the F-111 fighter designed in the 1960s, intended to fulfill all missions for all services, but missed all so badly that its nickname was the anti-heroic ‘Aardvark.’”
Tax reform is badly needed in our country, as a 70,000-page code is clearly a burden on economic activity (although it keeps me busy.) The last big, useful reform was achieved way back in 1986, with President Reagan and Tip O’Neill hashing it out.
Simplification is highly desirable, of course, but the greatest boon to effective tax planning is consistency. If you can count on the tax code staying stable for the foreseeable future, you can lay in solid plans and see them to their profitable conclusion. Uncertainty, however, makes the challenge more complex, and therefore requires constant attention and ongoing flexibility. We are now in an era of uncertainty. And urgency: If certain deductions go onto the chopping block and look likely to be eliminated, grabbing their benefits suddenly has an expiration date that you need to beat.
Finally, if you have strong feelings about which way tax reform should go, contact your Congresspeople. Add your citizen’s voice to the process!
Is there any way I can be of help with your tax-saving strategies, in the meantime?
About the Author...
Bruce Jones got his start in financial services in 1970 and has taught the subjects of tax management and financial strategy planning since 1974. He is President and CEO of TaxWealth®, a tax analysis and solutions research firm which provides comprehensive income, capital gains and estate tax remedies for owners of real estate, privately-owned businesses and other capital assets. He also supports CPAs, attorneys, financial advisors and real estate and business brokerage professionals, helping to solve their clients' tax problems.
TaxWealth works with clients and professional partners nationally from its home office in Newport Beach, California. Visit their web site at www.taxwealth.com or call Mr. Jones toll-free at (800) 300-4723 to discuss your tax concerns.