Tax Reform in 2017 – What It Means for Business

Donald Trump’s Presidency is in full swing and he has shown he intends to carry out his campaign promises.  One of his main objectives is to lower taxes and reform US tax law.  Will President Trump and the Republicans achieve tax law reform?  It is anyone’s guess, but President Trump promised it and will likely apply his negotiating skills to fulfill a key campaign promise.

 Corporations – Bring the Cash Back!

Currently, at 35%, the top corporate rate is among the highest in the world.  The Republicans would like to lower it to 20% and also repatriate almost one trillion dollars of US corporate cash residing overseas.  To “bring the cash back,” they believe that a low, one-time tax of 10% or less on such profits will do just that.  Their expectation is that bringing a large amount of cash into the US should spark the economy and job growth.  Therefore, corporate tax reform is the Republicans’ highest priority.

Lower rates also have the effect of encouraging businesses to invest tax savings into people and equipment.  Proponents of this strategy look to the Economic Recovery Tax Act of 1981, which helped fuel economic growth under President Reagan.

Individuals – Lower Rates – Simplify!

The tax code for individuals is extraordinarily complex.  Many filers have to prepare two tax returns: one for the regular income tax and another for the alternative minimum tax.  If President Trump and Republicans get their way, the alternative minimum tax will go away and there will be three brackets:  12%, 25% and 33%.  The top rate for capital gains would fall below the current 20% level.

Estate Taxes – But What About the Gift Tax?

The estate tax was implemented early in the 20th century to prevent the country’s wealth from accumulating in the hands of just a few people.  Currently, it produces only about 1% of total tax revenue for the US Treasury.  So, the tax could be eliminated with little or no effect on the country’s finances.  However, some say it should remain to make sure the balance of economic power is not skewed.  The tax is problematic for those affected as it often requires family businesses and farms to be sold to create the cash needed to pay the tax.

President Trump’s campaign platform included elimination of the estate or “death” tax.  He proposes a replacement that taxes inherited assets when they are ultimately sold.

The gift tax would likely remain according to most experts commenting at the recent Heckerling Estate Planning Conference this past January.  They reasoned that the gift tax should remain to protect:

  • Against income shifting techniques designed to reduce income taxes
  • Any estate tax that may be enacted in later years if the current version is eliminated.

Most experts believe that corporate tax reform is the Trump administration’s highest priority with individual income tax reform a close second.  The real question is will Republicans and the President have enough political capital left to get estate tax reform passed?  Only time will tell!

Michael C. Foltz, JD, CPA, CFP® is a BDF founding principal and founder of our Business Owner Team with an extensive background in law, tax and estate planning.  Mike shares his deep estate planning expertise by following the ever-changing federal and state estate tax laws and preparing education summaries for clients and team members.  Recognized by Chicago magazine as a Five Star Wealth Manager, Mike has given numerous presentations on estate planning to BDF clients and professional organizations such as the Exit Planning Institute. Publications such as Inc. magazine and the Wall Street Journal have featured his insights into estate planning, and he has contributed to an estate-planning publication for Commerce Clearing House.