In this Wealth Planning Update:
Momentum is building for 2017 to be the year for comprehensive tax reform. With the election over and the GOP in control of both the executive and legislative branches of government, conversations and meetings regarding tax reform are occurring among lawmakers in Washington DC on a regular basis.
President Trump's tax reform plan and the GOP tax reform plan are not fully aligned, but there are similarities between the two plans. Tax reform may take the form of President Trump's plan, the GOP plan, a combination of both, or it might mirror the Tax Reform Act of 2014 Discussion Draft, released in 2014 by former House Ways and Means Committee Chairman Dave Camp. Several members of the GOP have indicated that any discussions regarding future comprehensive tax reform would need to start with the Discussion Draft.
GOP senators need 60 votes to pass a comprehensive bipartisan tax reform bill and avoid a filibuster, which they acknowledge they do not currently have nor do they expect to have in the future. Therefore, comprehensive tax reform may be passed using a process known as budget reconciliation, which was also used by President George W. Bush to pass the 2001 tax cuts. Under the budget reconciliation rules, only a simple majority vote of 51 votes in the Senate is required to pass a tax reform bill; however, tax reform passed using this process may not be permanent. Regardless of the ultimate outcome, almost everyone is likely to be affected in one way or another, and we will continuously monitor the progress of tax reform legislation as it evolves over the comings months.
Although it is very likely that the tax reform legislation which is eventually enacted will decrease the number of tax brackets and tax rates, many unanswered questions remain. With respect to estate, gift and generation skipping taxes, for instance, we await answers to questions such as:
With respect to income tax and philanthropic planning, we await answers to questions such as:
Much uncertainty exists regarding President Trump's tax plan and its potential impact on income tax rates, exemptions and deductions for individuals and businesses, as well as estate, gift, and generation skipping transfer taxes for people interested in passing wealth to the next generation. Many of these tax rules, such as the charitable contribution deduction, have been in existence for decades, and also have important policy considerations behind them. Proponents of the charitable contribution deduction, for example, argue that it is different from other deductions because charitable contributions lessen the burden on government.
Until Congress begins moving actual tax reform legislation through the system, we will not know what the future may hold regarding the issues discussed here. We will continue to keep you informed as changes occur and recommend any actions you should consider as the legislation begins to take shape, probably later this year. However, because many of these issues may impact your wealth plan, and because some charitable planning or income, estate or gift tax planning opportunities may exist even without more certainty as to what the new tax reform legislation will be, we encourage you to speak with your advisor about how your wealth plan is positioned in this changing environment.
1 Source: Our Vision for Students, https://reed.house.gov/sites/reed.house.gov/files/Our%20Vision%20for%20Students%2C%20Final%2C%2012.2.16.pdf
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