There is some really good information coming up; things you probably want to know.  What your taxes may look like going forward. And it comes from a highly respected source.  So let me give you a bit on the source, IMCA® and then on the good stuff.

IMCA®, or the Investment Management Consultants Association® was established in 1985 to deliver premier investment consulting and wealth management credentials and world-class educational offerings through membership, conferences, research, and publications. IMCA sets the global standards and practices for the investment management consulting profession and provides investment consultants and wealth managers with the credentials and tools required to best serve their clients anywhere in the world. The CIMA® certification is administered by IMCA.

I admit it. I am proud to hold the Certified Investment Management Analyst  (CIMA®) designation, which identifies individuals who have met extensive experience and ethical requirements and successfully completed advanced investment management consulting coursework currently provided through The Wharton School, University of Pennsylvania. The CIMA® certification was recently recognized as the first financial services designation in the United States to earn accreditation by American National Standards Institute (ANSI®) under an international personnel certification standard.

September 2017—Legislative Intelligence Update | GOP Tax Plan Released


Welcome to this edition of IMCA’s Legislative Intelligence update. This month’s update reviews the recently released tax plan by President Trump and GOP congressional leaders.


GOP Tax Plan to Retain Charitable Giving, Retirement Savings Deductions


On September 27, the White House and congressional tax committees released the blueprint for tax reform that offers tax simplification and a broad menu of tax cuts for nearly everyone. However, advisors will not have any definitive answers for clients for weeks regarding the details. The House is expected to start the process shortly with introduction of a bill and committee hearings. President Trump and GOP leaders have set an ambitious goal for enacting a final bill into law by the end of the year.

While offering a broad outline of tax cuts and simplification, the blueprint is short on details in some key areas such as itemized deductions and so-called “pay-fors” to offset the estimated $2–$5 trillion overall cost of the tax package. As noted in last month’s Legislative Intelligence Update, if Congress wants to fast-track tax reform to avoid a filibuster by Democrats in the Senate, it will have to use the budget reconciliation process. The downside would result in temporary tax cuts “sun-setting” 10 years after final passage. This is only one of many questions raised by the new proposal.


Summary of Key Provisions

Below is a brief overview of key provisions of interest to financial advisors. The framework leaves many of the final details to the tax-writing committees in Congress. Left unanswered is a final top individual rate and the difficult task of picking winners and losers—in other words—which itemized deductions will be discarded. Overall the proposal reduces the seven individual tax brackets to three, eliminates the estate and alternative minimum taxes, and retains the mortgage interest deduction. Many will find some of their favorite tax-planning tools intact, including deductions for retirement savings and charitable giving.

Individual Rates. The initial tax bill likely will have three brackets of 12, 25, and 35 percent, with leeway for creating a higher fourth rate for the wealthiest individuals during the legislative process. However, the initial proposal does not specify the income ranges under each bracket.

Standard Deduction. The proposal nearly doubles the standard deduction to $12,000 for individuals and $24,000 for married couples and includes a “significantly” higher child tax credit but doesn’t specify an exact amount. At higher, unspecified income levels, the credit would be phased out. The current credit is $1,000 per child.

Pass-through Rate. Top earners who rely on pass-through income from limited partnerships, sole proprietorships, and S corporations would see their rates drop significantly under a new 25-percent rate that taxes business profits. However, the House Ways and Means and Senate Finance committees will face the difficult task of sorting out individual compensation, which would be excluded from the more favorable pass-through rate, from business profits.

Corporate Tax Rate. The rate would drop from 35 percent to 20 percent. President Trump had called for a 15-percent corporate rate, and but now says 20 percent is a “red line” and nonnegotiable.

Itemized Deductions. To simplify the tax code, the framework eliminates most itemized deductions, but retains key tax incentives for home mortgage interest and charitable contributions. Expect intensive lobbying and a big fight by special interest groups over the numerous other deductions that would be eliminated. This could slow down or push passage of a final tax bill into 2018.

Retirement Savings. Tax provisions sheltering retirement savings are retained. Although the tax committees were not instructed under the blueprint to consider “Rothification,” shorthand for removing the front-end income deduction for contributions, the issue could come up again in committee or floor amendments as a potential “pay- for.”

State and Local Tax Deduction (SALT). The deduction for state and local taxes would be eliminated. SALT is a hot button issue for state and local officials and also many GOP members in high-tax states such as New York, New Jersey, and California.

Alternative Minimum Tax (AMT). The AMT is repealed.

Estate Tax. The estate tax, currently applicable to estates valued at more than $5.49 million for individuals and $10.98 million for married couples, would be repealed along with the generation-skipping transfer tax.

Interest Deductibility. Interest deductibility is limited, although details will be determined by the tax committees.

Business Expensing. The blueprint allows for 100-percent expensing over five years for investments in depreciable assets other than structures built after September 27, 2017.


Prospects for Passage

Given the lack of major legislative victories this year, the White House and GOP- controlled Congress are eager to claim a success before the 2018 mid-term elections. That said, no one expects the process to be easy. The last time major tax reform was enacted into law was during the Reagan administration in 1986.

Although House Republicans usually have firm control over the House legislative agenda, Speaker Paul Ryan (R-WI) must be concerned with potential defections by House Republicans over repeal of the SALT deduction, a tax break worth more than $1 trillion in pay-fors. According to Internal Revenue Service data, 52 congressional districts held by Republicans saw above-average use of the SALT deduction in 2015.

Rep. Peter King (R-NY), who represents Long Island, told reporters the state and local tax deduction is “absolutely essential to my district. I can’t vote for a bill that would eliminate [it].” In neighboring New Jersey, lawmakers say a SALT repeal would increase taxes on the average taxpayer by $3,500 each year.

Perhaps surprisingly, the National Association of Realtors, while successful in preserving the mortgage interest deduction, came out within 24 hours of the blueprint’s release opposing elimination of the SALT deduction under the assumption that it would hurt housing prices.

Although Republicans control the House by a 240–194 margin, the more moderate Tuesday Group caucus, which comprises 48 members, could be a stumbling block to quick passage. And while the 33-member Freedom Caucus has endorsed the blueprint, if the resulting deficit increase is excessive, even after offsets from eliminating other deductions, some could object to the final bill. Although unlikely, if Republican support in the House falls short of passage, an effort to work with Democrats, such as the moderate, 18-member Blue Dog Coalition, could bog down the legislative process even more.

On the Senate side, with only a slim two-vote majority, the margin of error for Republicans is even less than on the House side. As evidenced by the failed attempt to repeal the Affordable Care Act (“Obamacare”), Senate GOP leaders have struggled to maintain control over that chamber. Senate Majority Leader Mitch McConnell (R-KY) will have to rely on the budget reconciliation process, which allows for a simple majority.

The alternative is a 60-vote majority to override a Democratic filibuster. Early reactions by Democrats in the House and Senate suggest they are closing ranks as they did in opposition to repeal of Obamacare.

The odds of a comprehensive tax reform law are likely by early next year but with the volatility that has seen other initiatives fail, the final outcome is uncertain. And if the debate over tax reform is prolonged into late spring or summer, the chances of passage are reduced as the campaign season gets underway.

About Legislative Intelligence Update The purpose of this update, prepared by Potomac Strategies for IMCA, is to give members legislative and public affairs intelligence and analysis. It is strictly informational and should not be relied upon as legal or compliance advice. IMCA, as an education and credentialing organization, does not lobby Congress or regulators, and does not advocate for any particular legislative or regulatory position either on its own or through its relationship with Potomac Strategies.
The views and opinions expressed in this article are those of the authors and do not necessarily
reflect the opinions of Spire Wealth Management LLC, Spire Securities LLC or its affiliates.