As it has so often in the past, Congress is making the end of the year difficult for accountants and tax practitioners, dragging tax legislation out to the last minute with a maximum of confusion and a minimum of advanced warning.
The simultaneous release on Thursday of the Senate’s proposals for tax reform and the House Ways and Means Committee’s markup of an earlier House bill may bring the tax reform process closer to some kind of end, but they provide few, if any, actionable items for tax professionals to bring to their clients, and in fact may end up threatening the entire reform effort.
The overall outlines of the two Republic plans are similar enough that it’s possible to imagine them being reconciled in committee, assuming they pass their respective chambers – but given the differences in the details, tax professionals will find it very difficult to advise clients on year-end planning. (See “Everything you need to know about the Senate GOP tax reform proposal.”)
Take, for instance, the prospect of lowering the corporate income tax rate to 20 percent, which both the House and Senate support. Tax professionals might want to advise business clients to plan on that – except that the Senate proposal would postpone the new rate until 2019, to make up for other cuts. Until that difference is resolved, the planning opportunity remains entirely theoretical.
Similarly, differences between the House and Senate approaches to the mortgage-interest deduction make it impossible for accountants and tax pros to offer definitive advice to clients looking to buy a house, and Congress’ internal disagreements over the ultimate fate of the deduction for state and local taxes mean tax pros in the high-tax states that would be most affected by its partial or complete elimination can’t offer much useful advice to the clients whose tax returns they’ll eventually be preparing.
What’s more, many of those differences in details speak to important disagreements and political considerations that could endanger the bills themselves. The House’s desire to ultimately repeal the estate tax will be a hard sell in the Senate, where Republicans have a very slim margin. Wrangling over the elimination of the state and local tax deduction will be particularly contentious in the Senate, where the high-tax states are all represented by Democrats. (The issue may even prove problematic in the House, where it was watered down; California Republican Darrell Issa has already come out against tax reform as it stands, because it will hit his state hard.)
The possibility that the distance between the House and the Senate ultimately could make tax reform unworkable adds yet another layer of uncertainty to the calculations tax professionals need to make in advising their clients.
Certainty of any kind is still at least a few weeks away, with the House expected to vote on the Ways and Means markup next week, and the Senate expected to vote on its bill the week after Thanksgiving. And even if they both pass, they would still need to be reconciled.
In the end, tax professionals can offer very little certain advice to their clients about the elements of tax reform, except to prepare potential responses to all the reform possibilities, to postpone those decisions that can be postponed, and to be ready to jump when Congress provides final direction – whenever that may be.