Tax Reform Framework

[Craigy]

Hot off the presses.

https://www.wsj.com/public/resources/documents/TaxFramework20170927.pdf

 

Still pretty vague.  Down to "three" brackets:  12%, 25%, 35%.  Could help or hurt docs, unclear where the brackets will be, and the mysterious 4th bracket:

"An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code
is at least as progressive as the existing tax code and does not shift the tax burden from high-income to
lower- and middle-income taxpayers. "

Mortgage interest and charitable deductions still available.  State income tax deduction probably going away.

20% corporate rate, maximum 25% rate on other small businesses.

We'll see if congress gets anywhere with this.

[ajm184]

Agree, not a lot of meat to chew on at this point, but that is the point with all the 'special interests' trying to insure their deduction/tax exemption remains in place.

a.  Somewhat surprised the mortgage interest deduction wasn't axed.  Perhaps they will significantly reduce the allowable amount.

b.  Appears the best work is being done on the business side for multi-nationals by the total expensing of capital equipment (should provide a ST boost), a glidepath for overseas earnings to be repatriated (medium term) and the removal of territorial tax shopping incentives (long term).

c. Didn't see anything specific on State deductions, but would love to see this go away so folks get an unvarnished look to compare what they for versus what the get in value from state/local taxing authority's.

[q-school]

i feel like the mortgage interest deduction is the third rail of politics.  i could be wrong.

i believe it doesn't exist in canada and hasn't seemed to affect ownership decisions.  certainly most could survive without it but they hate to break promises.

i'm really interested in where the proposed brackets would be set

 

[Craigy]

I think homeowners comprise most of Trump's voter base.  And yeah, "home ownership" is pretty untouchable.

With standard deduction doubling, eliminating state income tax break and other unknown itemized deductions, seems like a lot more people will be taking the standard deduction.  It looks very generous to double the standard deduction, but they're essentially rolling the personal exemptions into the standard deduction, so they're giving with one hand and taking with the other.

Everything hinges on where those brackets fall.  For people like us on WCI, could mean a big win, a big lose, or a wash.

[ajm184]

The interesting thing imo will be specifically about the mortgage interest deduction and the interplay with the doubling of the standard deduction.  Where I live, the 'average' home is in the 150k range and under this assumption, it won't make sense to itemize mortgage interest.  If you live in NYC, SF, Seattle or other HCOL cities the dynamic can change given the 'average' home price would be higher.  With the lose of the federal deductions for state/local income taxes paid and property taxes, the folks in HCOL areas are going to be see their all-in taxation amount paid increase.

[jhwkr542]

Another big issue is the business tax rate, especially with pass-thru entities.  Are they going the way of KS?  It sounds like they want to.  It did not go well here since everyone became a pass-thru entity.  It also did not drive the economy (at least not upwards).

[Craigy]

jhwkr542 wrote:

Another big issue is the business tax rate, especially with pass-thru entities.  Are they going the way of KS?  It sounds like they want to.  It did not go well here since everyone became a pass-thru entity.  It also did not drive the economy (at least not upwards).

Click to expand...

From the official release:

The framework contemplates that the committees will adopt measures to prevent the
recharacterization of personal income into business income to prevent wealthy individuals from
avoiding the top personal tax rate.

So in theory you'll have to do more than just become a pass-thru.  There will be hoops to jump through, various thresholds, etc., but this still sounds like a system that will be gamed.

[The White Coat Investor]

I don't mind the mortgage deduction going away, now that mine is paid off. I wasn't thrilled to see talk about not being able to deduct state taxes though. Might be an incentive for states to move away from a state tax and toward property tax.

I'd love to see the top rate drop 5% though, that would save me a lot of money, but making WCI profits only subject to a 25% tax would be far bigger. I can't imagine that would pass, but who knows? We'll all be becoming independent contractors and incorporating if that happens.

[djohnflatfeecfp]

I agree with Craigy and whether Congress gets anywhere with this.  Based on recent performance I am not holding my breath or even preparing anything for clients.  I was talking with a couple of CPAs recently and they just laughed when I asked them if they had any expectations of substantive tax reform.  Time will tell.

[MPMD]

djohnflatfeecfp wrote:

I agree with Craigy and whether Congress gets anywhere with this.  Based on recent performance I am not holding my breath or even preparing anything for clients.  I was talking with a couple of CPAs recently and they just laughed when I asked them if they had any expectations of substantive tax reform.  Time will tell.

Click to expand...

this is the rational position.

timeline is exceedingly difficult esp going into 2018.

[StarTrekDoc]

Cali going to take it in the chin on this.   Maybe will right size the property tax/income tax issue -- Prop 13 is great for owners, but it stacks all the revenue onto state income and highly progressive.

Deckchair reshuffle for us.  Helps some; hurts some --- winner if it just simplifies the code to make it easier to file -- H+R block to declare bankruptcy though.

 

[hightower]

Craigy wrote:

Hot off the presses.

https://www.wsj.com/public/resources/documents/TaxFramework20170927.pdf

 

Still pretty vague.  Down to “three” brackets:  12%, 25%, 35%.  Could help or hurt docs, unclear where the brackets will be, and the mysterious 4th bracket:

“An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code
is at least as progressive as the existing tax code and does not shift the tax burden from high-income to
lower- and middle-income taxpayers. ”

Mortgage interest and charitable deductions still available.  State income tax deduction probably going away.

20% corporate rate, maximum 25% rate on other small businesses.

We’ll see if congress gets anywhere with this.

Click to expand...

Fun to think about but I'm not going to hold my breath waiting for this to actually pass.  If there's one thing this republican lead congress and our idiot president have proven, it's that they are incapable of coming together and accomplishing anything of any value (outside of silly executive orders, pardoning racist criminal, or tweeting insults).  They've tried at least 3 times now to repeal the ACA, which was their #1 promise during the campaign, and so far they have failed completely miserably to do that.

None of this is any surprise of course, given the ego maniac, twitter freak they elected president.  With literally zero political experience and a complete focus on nothing other than finding ways to imagine his greatness, there's little chance he'll do anything that involves compromise and actual effort.  Tax reform is a dream they won't be able to achieve.  Fortunately there are enough sane people in congress that they won't allow a bill to pass that will bankrupt the country.

With this being said, I do fully support tax reform.  Simplify the tax code, get rid of all the enormous tax breaks for the ultra wealthy, ease up on the corporate taxes a little, etc.  But, I have no faith this administration will be able to accomplish it and if they do, they'll get it all wrong.

[djohnflatfeecfp]

StarTrekDoc wrote:

Cali going to take it in the chin on this.   Maybe will right size the property tax/income tax issue — Prop 13 is great for owners, but it stacks all the revenue onto state income and highly progressive.

Deckchair reshuffle for us.  Helps some; hurts some — winner if it just simplifies the code to make it easier to file — H+R block to declare bankruptcy though.

 

Click to expand...

H&R, Liberty and Jackson Hewitt will continue to thrive on their refund anticipation check business.  It provides them hundreds of millions of fees. Of course, that's assuming tax returns could ever get down to one page.

[Zaphod]

hightower wrote:

Craigy wrote:

Hot off the presses.

https://www.wsj.com/public/resources/documents/TaxFramework20170927.pdf

 

Still pretty vague.  Down to “three” brackets:  12%, 25%, 35%.  Could help or hurt docs, unclear where the brackets will be, and the mysterious 4th bracket:

“An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code
is at least as progressive as the existing tax code and does not shift the tax burden from high-income to
lower- and middle-income taxpayers. ”

Mortgage interest and charitable deductions still available.  State income tax deduction probably going away.

20% corporate rate, maximum 25% rate on other small businesses.

We’ll see if congress gets anywhere with this.

Click to expand…

Fun to think about but I’m not going to hold my breath waiting for this to actually pass.  If there’s one thing this republican lead congress and our idiot president have proven, it’s that they are incapable of coming together and accomplishing anything of any value (outside of silly executive orders, pardoning racist criminal, or tweeting insults).  They’ve tried at least 3 times now to repeal the ACA, which was their #1 promise during the campaign, and so far they have failed completely miserably to do that.

None of this is any surprise of course, given the ego maniac, twitter freak they elected president.  With literally zero political experience and a complete focus on nothing other than finding ways to imagine his greatness, there’s little chance he’ll do anything that involves compromise and actual effort.  Tax reform is a dream they won’t be able to achieve.  Fortunately there are enough sane people in congress that they won’t allow a bill to pass that will bankrupt the country.

With this being said, I do fully support tax reform.  Simplify the tax code, get rid of all the enormous tax breaks for the ultra wealthy, ease up on the corporate taxes a little, etc.  But, I have no faith this administration will be able to accomplish it and if they do, they’ll get it all wrong.

Click to expand...

Tax reform is way harder than the healthcare stuff theyve been doing, and they cant do that so dont hold your breath.

Corporate tax doesnt 'need' to be reduced, it needs its loopholes and easily gamed nature fixed. That is the usual case, large multinational companies pay very little tax, mom/pop places are crushed. A balancing needs to occur which a reduction in rate wont necessarily do. The 25% sole prop/llc thing will, but I dont know how they implement this to its desired end while stopping abuse, thats basically impossible without making the system more complicated, which is opposite of their supposed point.

Its basically unchanged from their first released pre election guide, and just as likely to happen. You notice how we switch to tax reform right after a failure of the health care bill, this is like number 4 or 5, wont be the last.

[StarTrekDoc]

Just like healthcare process -- the devil is in the details and I don't think they will do that either and end up with a crappy partisan vote that goes no where.

It would great to see some bipartisan work on this and maybe, just maybe, it'll get some life in it.

I can see it getting muddled with DACA and Immigration bill or at least with Budget and ceiling extension since that was punted to holiday season.

As others have said -- snowballs chance at this time, but, hey at least they are talking and 'trying'.