With Republican control of Congress and the presidency, most practitioners think some kind of change is coming to the Tax Code – but they differ wildly on what form it will take.
“Trump and the Republicans will make major tax changes,” said Kathy Hawboldt, of Hawboldt’s Tax Service in Louisville, Ky.
“I believe the Tax Code will be reformed with most of the proposals put forth,” said William Keats, an Enrolled Agent at Keats Tax & Financial Service in North Merrick, New York. “It’s time to restructure the tax laws.”
Fewer tax brackets, streamlining favorable to business, fewer deductibles but bigger standard deductibles: So much is on the table that changes seem unavoidable. “There will be reformations in the code,” said Morris Armstrong, an EA and registered investment advisor at Armstrong Financial Strategies, in Danbury, Conn. “It was a major plank in the platform of the winning party.”
“Promises were made,” said Steven Weil, an EA at RMS Accounting in Fort Lauderdale, Fla. “We think lower corporate rates are coming, along with lower rates for many individuals. The [Affordable Care Act] will also be on the chopping block, and we expect to see major changes related to that.”
“It’s been 30 years since the 1986 revisions. Whether one agrees with the president-elect and a Republican Congress or not, our Tax Code will be simplified,” said preparer Eric Hansen of Hansen Accounting in Omaha, Neb.
House Ways and Means chief tax counsel Barbara Angus has told news outlets that tax reform legislation is being crafted for early 2017. The bill is expected to largely be derived from the House GOP reform blueprint released in June.
“I’d be surprised if we don’t see any changes,” said EA Laurie Ziegler, of Sass Accounting in Saukville, Wis. “This is the first time in a very long time that the House, Senate and president have all been from the same party.”
Sense and timing
Some preparers seem skeptical of real change. Reform? “Probably, but it’s a massive job. Think 1985,” said Florida EA Steve Odem. “Probably in stages, business first including repatriation, probably with estate tax, and individual taxes two years later.”
“Any reforms will be token at best,” said Geoff Plourde, an EA and CPA in Woodland Hills, Calif. “All prior attempts at simplification only made things more complex. I also don’t foresee much action from Congress. While Republicans technically control both Houses, the Republican House is really a coalition of diverse interests that will only serve to become more polarized due to power. The Republican majority in the Senate is far too slim and Senate leadership too weak to enact any meaningful reform.”
In his blog The Wandering Tax Pro, Robert Flach foresees tax reform legislation being introduced, and probably passed, early in 2017. “But not what Trump proposed [in the campaign],” Flach writes. “Almost nothing Trump promised during the campaign will actually happen – except for tax reform and the repeal and replacement of Obamacare. And these will happen not because Trump promised them, but because the Republican leadership in Congress has wanted tax reform and the repeal of Obamacare for years.”
Several points of proposed reform have bipartisan support, noted EA Gene Bell of Bellingham, Wash. “I also think that congressional deadlock will not be as much of an issue for the next couple of years,” he added.
EA Joel Grandon, of Marion, Iowa, predicts no overhaul of the Tax Code, “nor any real simplification. The machine has grown so big and entangled that to greatly simplify the Tax Code would be a process that would take years – and create way too many unintended consequences.”
Grandon added that he knows “some who believe that the government’s real power comes from its ability to use the Tax Code to catch criminals and other unsavory characters and punish them under tax statutes when all other attempts fail. In some cases, this has been proven historically, and so the complexity of our Tax Code has become a necessity for law enforcement.”
He foresees “commonsense” reforms over the next year or two. “I think the most notable will be surrounding the various requirements and penalties for the ACA. I do hope the ACA leaves the purview of the IRS and is moved to some other bureaucracy better equipped to deal with health-care issues. I also believe we’ll see more incentive for businesses to invest in property, plant and equipment in an effort to spur economic development.”
EA Twila Midwood, at Advanced Tax Centre in Rockledge, Fla., sees no major reform for the current upcoming season. “It’s so late in the year to implement significant reform for the 2016 tax year. It will be interesting to see how the new administration addresses this issue once in office.”
“I’m optimistic that Trump will have a positive influence on the code, although I don’t believe it will happen this year, and perhaps even not next,” said Terri Ryman, an EA at Southwest Tax & Accounting in Elkhart, Kansas.
The AICPA’s Tax Executive Committee has identified key issues that Congress and the Trump administration should consider: equity, simplicity, minimum tax gap, transparency and economic growth and efficiency; repeal the AMT; and avoiding phase-ins and phase-outs wherever possible, among others.
Preparers too have pet predictions of changes.
“I’ve given up guessing what will be in and out, but I do hope that Congress can close that stupid tax gap,” Armstrong said, “fund the IRS at a higher level and allow them to collect taxes, something which they have demonstrated that they are pretty good at.”
“[My] hope is that the Republicans learned from the Democrats’ mistakes in tax years 2009-2010 and resist the urge to push too hard,” said EA John Dundon, of Taxpayer Advocacy Services in Englewood, Colo. He predicts that not only gift and estate taxation will dramatically change, but also the “elimination of the head of household filing status, the ACTC and maybe even the EITC. I’m bracing for a 1986-style comprehensive tax reform.”
General strategies to move toward a flat tax “are a significant windfall for the wealthy and a tough tax hit for the poor,” said EA Richard Ogg, of The Master’s Tax & Financial Services in Santa Rosa, Calif. “When thresholds are used to attempt to protect some, it only alienates others.”
“Our government has been working to remove more and more citizens from the tax rolls,” Ogg added. “I believe the latest number is 44 percent of our citizens’ families do not pay any income tax. It would be interesting to get the history lesson of what happens to civilizations when their taxing rules skew, as ours have.”
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