Tax Reform, 2704 Regs: Where Are We Now?
With the August Recess upon us in the United States Congress, it is a good time to sit back in our chairs and survey the landscape.
Among many other developments, the first six months of the Trump Presidency have seen the following:
- A one-page slide on tax reform was disseminated by the Trump administration in late April, calling for significant cuts to corporate tax rates, individual tax rates, and a repeal of the estate tax.
- The “Big Six” [House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Kevin Brady (R-TX)] released a joint statement in late July, taking the border-adjustment tax off the table, and placing emphasis on corporate tax cuts and helping the working/middle class. A key part of the statement was as follows:
- "We have always been in agreement that tax relief for American families should be at the heart of our plan. We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones. The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas…"
- A failed attempt at healthcare reform in late July, showing that the Republican Party is somewhat splintered and getting 50 votes is easier said than done.
- House Speaker Ryan recently claimed that the Republicans are far more united on tax reform than healthcare, and fully expects to see tax reform through the budget reconciliation process this fall.
- We are in the midst of a regulatory freeze. The White House’s Office of Management and Budget stated in July that it would discard hundreds of existing or planned regulations as part of its larger push to be more business friendly. The Trump administration said it was completely withdrawing 469 proposed regulations, and setting aside or reevaluating an additional 391.
- The proposed 2704 regulations are one of eight sets of significant tax regulations listed for review and assessment as potentially overly burdensome on taxpayers. A notice issued from Treasury in early July suggests that Treasury will propose reforms to all of these regulations, spanning from modifying proposed rules to full repeal/withdrawal. None of this comes as a surprise, and it now appears highly likely that the currently proposed 2704 regulations will not be implemented in their current form, if at all.
In the last several months, we have gained some clarity on the future (or lack thereof) of the proposed 2704 regulations. On the other hand, tax reform has not advanced very far. If anything, it appears that the list of objectives and the extent of tax cuts is being reigned in to increase the odds of passage. Still, time will tell, and MPI will continue watching for any developments as the wild ride continues.
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