GOP tax battle looms over advisers and their clients

Debate rages over whether or not to repeal the estate tax and AMT, plus whether cuts should be temporary or permanent

Oct 10, 2017 @ 10:00 am

By BloombergNews

President Donald Trump and Republican congressional leaders unveiled a framework in September for far-reaching changes to the U.S. tax code. Now it's up to the House and Senate tax-writing committees to turn the framework into legislation that can pass both houses. They can do that without Democratic support because of a Senate procedure that lets them avoid a filibuster on bills related to taxing and spending. But first they have to reach agreement within their own ranks. With Republicans holding 52 seats in the 100-member Senate, only a few defections could sink a bill -- as happened to their failed efforts to repeal Obamacare. Here are issues that might divide Republicans.

1. Will tax cuts add to the deficit?

Some Republicans in the Senate, most notably Bob Corker of Tennessee, are opposed to tax cuts that aren't paid for. Corker -- who at the moment isn't on the best terms with the Trump White House -- estimates that the bill would need to find, or raise, $4 trillion to keep from increasing the deficit. Others, like Pat Toomey of Pennsylvania, Rand Paul of Kentucky and Ted Cruz of Texas, say a bill that's revenue-neutral wouldn't do enough to promote economic growth.

2. How will the tax cuts be paid for?

The framework gave few details, other than suggesting abolishing the state and local tax deduction. That would raise an estimated $1.3 trillion over a decade but faces headwinds from Republican lawmakers in districts that use the deduction heavily; National Economic Council Director Gary Cohn said ending it was negotiable while Republican leaders have been part of discussions about capping rather than killing it. House leaders have proposed abolishing the corporate interest deduction, a move opposed by debt-reliant industries like private equity and commercial real estate. Several Senate Republicans have said it's unlikely that interest deductibility would be repealed fully.

3. Should the cuts be permanent or temporary?

The Senate rule that allows passage by a simple majority requires that the bill not add to the deficit beyond 10 years. Tax cuts passed in 2001 and 2003 under President George W. Bush made some measures temporary specifically to avoid that vote-counting problem. Some Republicans arguing for offsetting tax increases say cuts have to be permanent to be effective in boosting growth. Toomey has called for changing the rule to extend the window to 30 years.

4. Should the estate tax be repealed?

A long-sought goal of Republican leaders is to end the estate tax. But Senator Mike Rounds of South Dakota said he doesn't want to eliminate it, and Senator Susan Collins has opposed repeal of the estate tax in the past.

5. How much benefit goes to the wealthy?

Trump has insisted the legislation won't cut taxes for the rich, but the framework includes provisions that would benefit the wealthiest, including rate cuts, repeal of the Alternative Minimum Tax, and cutting the tax rate substantially for closely-held businesses. It did, however, leave open the possibility of a new top individual income tax rate above the stated 35 percent. But it's unclear that'll happen, Orrin Hatch of Utah, the chairman of the Senate Finance Committee, and House Ways and Means Chairman Kevin Brady have said. Trump has said the cuts wouldn't benefit him personally. Democrats have ridiculed that claim and called for him to release his tax returns so it can be checked.

6. Will some middle-income households pay more?

Some Republicans are uneasy about gaps in the framework's details about middle-class tax relief. A study by the nonpartisan Urban-Brookings Tax Policy Center found that most middle-income families would enjoy after-tax gains, but that taxes would go up for almost 30 percent of people making $50,000 to $150,000 because of new limits on tax breaks. Brady blasted that study as "a work of fiction that Stephen King would've been proud of." The authors said they used brackets outlined in the House GOP tax blueprint released in 2016.

7. What process should be used?

Under the Constitution, tax bills must originate in the House. But the Senate will consider its own version and won't be dictated to, said Hatch. And Senator John McCain of Arizona has said he wants any bill to be developed through "regular order" -- with hearings, debate, amendments and bipartisan support.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 23

Conference

Women Adviser Summit - San Francisco

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

Events

What can advisers learn from the first female fighter pilot?

Pressure is pressure. Whether you are taking off from an aircraft carrier or dealing with the unforgiving movements of the market, you need to have a plan. Carey Lohrenz, the world's first female F-14 pilot, has some advice for advisers.

Latest news & opinion

10 most affordable U.S. cities for renters

Here are the U.S. cities that are most affordable for renters, according to Business Student.com, which compared the cost of rent to average salaries.

9 best - new - financial adviser jokes

Scroll through for nine new financial adviser laughs.

Captrust, prominent 401(k) advice firm, ramps up its wealth management business

Captrust wants to grow annual revenue from wealth management to 50% from 30% over the next five years.

Fidelity CEO says zero-fee funds aimed at expanding its universe

Johnson says way to prosper in financial services is 'by building relationships.'

SEC advice rule contains a huge hole

Jay Clayton aims to clear up investor confusion by drawing a distinction between brokers and advisers in the agency's proposed package of revised standards. But where do dual registrants fit?

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print