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Discussion on 2017 Tax Reform

The change in administrations in Washington has generated a new focus on tax reform. The White House and lawmakers from both parties have discussed tax cuts, infrastructure spending, and more to encourage economic growth. However, the details of their plans have yet to be revealed.

Tax reform
President Trump campaigned on tax reform and Republican lawmakers in the GOP-controlled Congress, especially in the House, have endorsed many of his proposals. House Republicans also have their own “blueprint” for tax reform. At the time this article was prepared, neither the White House nor House Republicans had released specific bill language. However, based on statements from the president and House Republicans, tax reform legislation in the House is expected to include:

  • Consolidated and lower individual income tax rates
  • Reduced corporate tax rate
  • Elimination of the alternative minimum tax (AMT)
  • Some new tax incentives for childcare and eldercare
  • Elimination of some unspecified individual and business tax incentives
  • Repeal of the federal estate tax

House Speaker Paul Ryan, R-Wisconsin, predicted that the House will approve a tax reform package within the first 200 days of 2017. At the same time, Ryan acknowledged that the Senate operates under different rules and legislation and often moves at a slower pace. In past years, the House and Senate have played ping pong with tax bills, with the House passing a bill, the Senate amending it and returning it to the House, and so on. That process could repeat itself this year.

Affordable Care Act
President Trump also campaigned on repeal and replacement of the Affordable Care Act (ACA). The ACA was not only a health care bill; it was also a tax bill. The ACA created many new taxes, including the net investment income (NII) tax, the additional Medicare Tax, the excise tax on medical devices, and the excise tax on high-dollar health plans. These taxes, especially the NII tax, have generated significant revenues for the federal government.

The president previously said that repeal and replacement of the ACA would be “simultaneous” but gave few details about what a new health care bill would look like. The president has mentioned, briefly, expanding health savings accounts (HSAs). House Republicans also have discussed HSAs. In the Senate, one GOP proposal would allow states to keep the ACA. House Minority Leader Nancy Pelosi, D-California, has said that any ACA replacement must meet the fundamental principles of the ACA to win support from Democrats.

Democrats and Republicans, along with the White House, have discussed increased spending on infrastructure in 2017. Infrastructure could include some unspecified tax incentives. South Dakota Republican Senator John Thune said that infrastructure spending could be part of a larger tax bill, but he gave no specifics.

Shortly after taking office, President Trump ordered a hiring freeze for federal employees. Traditionally, the IRS hires many temporary workers during the filing season to answer calls from taxpayers and help to process returns. It is unclear how the president’s order will impact the IRS’s hiring plans, if at all. Since 2010, the IRS has limited full-time hiring in response to budget pressures.

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