Tax Reform - What's Next?

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This week, our Tax Cuts and Jobs Act (TCJA) alert is taking a break from the nuts and bolts of the changes enacted in December to look at what's on the horizon for tax legislation.

 

Some lawmakers believe that a package of technical corrections is needed to clarify changes in TCJA. An obvious target is the depreciation of qualified improvements to real estate property. The tax writers in Congress intended for these to eligible for 100% bonus depreciation, but due to a drafting error the assets must be written off over 39 years. Unlike TCJA, which moved through the Senate under a special reconciliation process requiring only Republican votes, technical corrections would require support from Democrats as well.

 

Meanwhile, President Trump has called for "phase two" of tax cuts. The plan he and GOP lawmakers have outlined includes making both the individual tax rates and the 100% deduction of business assets permanent. Those provisions are currently slated to expire by 2026. Top White House economic advisor Larry Kudlow said permanent provisions deliver "more bang for the buck."

 

Other tax-related legislation has been introduced in Congress. A bill in the Senate Finance Committee would encourage employee retirement savings by increasing employer incentives. The House Ways and Means Committee is crafting legislation to redesign the IRS by improving quality customer care, treating taxpayers fairly, and modernizing outdated technology and procedures. The IRS website crash last week highlights the need for these improvements.

 

Last month, Senate Democrats outlined a plan to roll back some of the individual and business tax breaks in the new law and invest the savings in job-creating infrastructure. Their proposals include restoring the top personal rate to 39.6%, increasing the corporate tax rate from 21% to 25%, and reversing estate tax and AMT cuts. GOP lawmakers called the proposal a "nonstarter" and it is unlikely to gain any traction while Republicans control Congress.

 

At LM Cohen we continue to stay on top of tax developments in Washington and will keep you informed of important changes. Next week's alert will return to the detailed impact of TCJA on our readers.

 

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