Investor’s column: Predicting what will happen on tax reform

Talk of tax reform or a flat tax, despite good intentions, usually goes nowhere.

One only has to think of failed presidential candidate Steve Forbes extolling the virtues of a flat tax in 1996 and 2000. Herman Cain also unsuccessfully touted the virtues of a flat tax in his 2012 presidential campaign. Cain even proposed replacing the income tax system with a quirky 9-9-9 tax. Cain sought a 9 percent income tax, a 9 percent corporate income tax and an additional 9 percent national sales tax.

Now President Donald Trump is aggressively promoting tax reform. And Speaker of the House Paul Ryan said tax returns could be filed on a form the size of a postcard.

In my opinion, the odds of tax reform passing in the next 12 months are higher than at any time since the Tax Reform Act of 1986. Everyone is wondering what features of tax reform will survive lobbyists, special interests and media scrutiny.

Here’s a preview of what might happen.

“Assuming tax reform makes it to the finish line, in my view we’re likely to see lower business and individual rates,” said Carol Kulish, a director in the Federal Tax Legislative & Regulatory Services Group of Washington National Tax practice of KPMG. “Those are the big priorities for the president and Congressional Republicans. The really interesting question is whether some of those rates might wind up being phased in or temporary.”

Tax reform probably will affect small businesses, including S-Corporations and partnerships, in a big way.

“There are big questions as to both what the scope of rate reduction might be for owners of pass-through businesses, and to what extent there might be rate relief at the top end of the distribution scale,” Kulish said. “Meeting revenue and income distribution targets will likely challenge and affect the final rate structure.

“Simplification for individuals has been a key objective for Republicans. It’s hard, though, to judge how much simplification their proposals might achieve until we actually see a detailed bill. Some things they have been talking about – like providing a capped rate for individual owners of some pass-through businesses – have potential to be quite complex.”

Here are own predictions of likely tax changes:

• The alternative minimum tax (AMT) could be repealed.
• Fewer taxpayers will itemize deductions because of a likely expanded standard deduction.
• Earned income credit and 401(k) contributions stay or get pared down modestly.
• New tax rules, regulations and laws probably will require volumes to properly interpret and implement.
• Corporate tax rates might be reduced to a high of about 20 percent.
• Affluent people with savings probably will come out ahead.
• Most tax changes likely will start in 2018.
• Repatriating offshore income back to the United States may tax old foreign earnings at about 5 percent and be payable, perhaps, over approximately eight years.

Here’s hoping none of those predictions cause embarrassment or result in regret for writing this column.

I’m not too worried, though. More likely, as a CPA, I expect a very busy tax season helping people figure out the new tax rules.

This story was originally published November 6, 2017 at 12:17 PM with the headline "Investor’s column: Predicting what will happen on tax reform."