As we explained in our last client communication in November, it is very challenging to do maJor tax reform, which is why it hasn’t happened since 1986. Republicans began the year with an ambitious agenda that included enacting a major tax reform package – including estate tax repeal. The goal was to complete tax reform, in addition to repealing and replacing Obamacare, by the August recess.
Yet as we enter June, deadlines have slipped, and Republican leaders now acknowledge tax reform will be difficult to achieve before the end of the year.
At the heart of this issue is what is best for the client. That is central to AALU’s advocacy efforts. In the case of the estate tax, this involves asking the following question should clients gamble with their insurability?
Both President Trump and House Republicans have put forth proposals that would significantly reduce revenues to the government. The Tax Policy Center estimated that Trump’s overall campaign plan (which is very similar to his one-page proposal released last month) would reduce revenues by $6.2 trillion over 10 years, and the more conservative Tax Foundation estimated a revenue loss of $2.6 trillion to $3.9 trillion after accounting for greater economic growth. And this was without a 15% pass-through rate, which would likely add $2 trillion to long-term debt protections from these organizations.
Treasury Secretary Mnuchin says the tax cuts outlined by the Trump Administration will pay for themselves with economic growth. Yet it’s widely disputed by economists on the left and the right. For example, Douglas Holtz-Eakin, a former Director of the Congressional Budget Office and economic advisor in the George W. Bush Administration, cautioned against the assumption that tax cuts will pay for themselves, suggesting that if interest on the national debt continues to steadily increase it could cancel out the benefits of reducing taxes.
Repealing the estate tax costs $275 billion over 10 years, a costly contributor to the significant revenue challenges outlined above.
The Congressional calendar will continue to hamper Republicans in their quest for a quick passage of tax reform.
Health care reform is the biggest immediate hurdle, as it creates a procedural bind for Republicans. House leaders can’t move a FY 18 budget resolution to use for tax reform until health care has been enacted – because as soon as the FY 18 resolution is operative, the FY 17 resolution can no longer be used.
In addition to tacking health care and tax reform, Congress will need to raise the debt ceiling sometime this Fall, reauthorize funding for SCHIP and the FAA, and confirm a number of key unfilled cabinet positions.
These efforts will take place in a tense Senate environment, where the firing of FBI Director James Comey further strains party relations already roiled by the use of the nuclear option in the nomination of Neil Gorsuch to the Supreme Court.
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