With healthcare reform off the table for now, Congress is turning its attention to the second major type of legislation planned for 2017: tax reform. To that end, the White House and House of Representatives have issued a joint statement discussing their highest tax-related priorities.
Continue Reading Below
Here are four highlights from the joint statement that you should know about, keeping in mind that these ideas may or may not make their way into the tax code.
1. GOP priorities for tax reform
Rather than go into specifics, the joint statement discusses the goals that the White House and Congress hope to achieve through tax reform. The statement repeatedly refers to the existing tax code as "broken" and touches on the subjects of tax relief for families; lower tax rates for businesses, especially small businesses; encouraging American corporations to bring money they're hoarding overseas back to the U.S., thus spurring job production and economic growth; and making permanent tax breaks, rather than temporary ones such as tax breaks with predetermined expiration dates.
2. Tax breaks for families
The joint statement speaks of "a plan that reduces tax rates as much as possible," but it doesn't go into any detail about potential tax breaks for families. However, previously released statements provide clues about what the GOP has in mind for individual income taxes.
Continue Reading Below
The House Republican tax reform plan released last year replaced the existing seven tax brackets with just three tax brackets; nearly doubled the standard deduction; eliminated itemized deductions, with the exception of charitable contributions and mortgage interest; eliminated the alternative minimum tax; and replaced personal exemptions with tax credits.
The White House tax reform statement from April echoed the house plan on all of these points except for personal exemptions (though it didn't deny the possibility of replacing personal exemptions with tax credits). Otherwise, there are only slight differences in the specific details of the two plans. For example, the House Republican plan proposed tax brackets of 12%, 25%, and 33%, while the White House plan proposed tax brackets of 10%, 25%, and 35%. The fact that these two proposals were largely in agreement on those points means it's likely we'll see them in upcoming tax reform legislation.
3. Permanent tax reform
The joint statement stressed the need to develop permanent changes to the existing tax code, rather than implement temporary revisions. That will help to keep tax reform intact in future years, as Congress won't have to decide annually whether or not to carry forward the changes as they did following the American Recovery and Reinvestment Tax Act (ARRA) of 2009 (ARRA created a host of temporary tax cuts; Congress eventually made several of these cuts permanent in the PATH Act of 2015, while allowing others to expire).
On the other hand, permanent changes to the tax code may be more difficult for Congress to pass than temporary changes would be. For one thing, budget reconciliation rules won't allow Congress to pass any legislation that would add to the deficit beyond 10 years in the future, so any permanent tax breaks would have to be bundled with expense cuts or other sources of funding to balance tax reform's impact on the federal budget.
4. Border adjustability
The joint statement made it clear that border adjustability, which would have increased taxes on imports, is no longer on the table. The border adjustment as proposed by the House of Representatives made it impossible for businesses to deduct the cost of purchased imports, while removing taxes on revenue from exports. The joint statement declared that the White House and Congress "have decided to set this policy aside in order to advance tax reform." Since border adjustability would no doubt have caused dissension in Congress and would also likely have been challenged by the World Trade Organization, setting it aside should make the process of enacting tax reform smoother.
What's next for tax reform?
Before federal legislators can introduce tax reform, they need to pass next year's federal budget. Budget reconciliation rules can generally only be used once per annual budget, and Congress has already used those rules for healthcare reform against the current year's budget. Thus it will probably be a while before tax reform is even introduced in Congress, let alone passed. While it's technically possible that Congress will manage to pass tax reform by the end of the year, next year looks like a much more likely time frame.
The $16,122 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.