How Will the Election Results Affect Taxes in 2017?November 22, 2016
How will the results of the election affect federal taxes in the future?
Regardless of how they voted in the election, people are wondering how the results will affect federal taxes in the future. Of course, we don’t know the exact answer. But we do know that tax reform is at the top of the agendas of congressional lawmakers and President-elect Trump. With Republicans in control of both branches of government, gridlock is less likely — and tax-related bills stand a strong chance of getting signed into law. Here’s a closer look at what’s currently in the works.
Congress Proposes Tax Reform
The House Ways and Means Committee released a proposal earlier this year that would reduce business and individual tax rates, eliminate certain deductions and restructure U.S. taxes on income from abroad.
Specifically, the Better Way Tax Reform Blueprint would:
- Simplify tax forms, allowing most Americans to file using a postcard-size form.
- Reduce the number of individual tax brackets from seven to three.
- Lower the top individual income tax rate to 33%.
- Increase the standard deduction and child and dependent tax credits.
- Streamline education tax benefits.
- Eliminate the alternative minimum tax (AMT).
- Improve the earned income tax credit (EITC) for lower income families.
- Reform savings provisions for retirement.
- Reduce taxes on “Made in America” products.
- Repeal the estate tax.
- Allow a deduction for 50% of dividends, capital gains and interest received from stocks and mutual funds and provide a tax-free return on new investment.
- Cut the tax rate for most small, pass-through businesses to 25%.
- Lower the corporate tax rate to 20% and shift to a more competitive “territorial” system.
In addition, the House plan promises to restructure the IRS to help expedite dispute resolution and make information readily available and secure. In July, the Tax Foundation reported that the plan would grow the economy by 9% over the next 10 years, create 1.7 million full-time equivalent jobs and increase wages by an average of 7.7%.
Taxes Targeted in 100-Day Plan
During the last months of campaigning, President-elect Trump’s tax plan became more closely aligned with the plans of House Republicans. This could signal his willingness to cooperate with Congress, but there are still some differences. For example, the President-elect’s plan includes a lower (15%) tax rate for corporations and a one-time tax of 10% on corporations that bring foreign earnings back into the United States.
When would the President-elect like to tackle tax reform? In October, he promised to focus on taxes during his first 100 days in office. Specifically, his proposed tax law would cut taxes and simplify regulations, including plans to reduce the current number of brackets, simplify tax forms, lower the business tax rate and allow repatriation of offshore profits.
Nothing Is Certain
With the power of the White House behind Congress, tax reform seems likely in 2017. But compromises may be made along the way. Democrats still hold 48 seats in the Senate and 193 seats in the House, so they’ll have some input into the reform measures that will be introduced. They’ll also have a say in how any incremental revenues will be spent.
Our tax professionals are atop the latest developments in legislation. Contact us for help with business or individual tax planning strategies under these unpredictable market conditions.