By John Gimigliano, Principal in Charge, Federal Legislative & Regulatory Services, Washington National Tax, KPMG LLP
Apr 28, 2017
From the Tax Governance Institute
There’s been much analysis of President Trump’s tax plan released last week. While there were some nuanced (but not unexpected) changes from his campaign promises, nearly all the elements outlined in the principles released by the White House on April 26 were previously included in the campaign plan. Moreover, the President’s plan remained closely aligned with the House Blueprint in a significantly lower corporate rate, a collapsed bracket structure for individuals, and a special tax rate for certain pass-through income. In addition, the new plan moved closer to the Blueprint by more clearly endorsing a “territorial” tax system than he had previously discussed.
However, perhaps the most interesting part of the President’s plan is not what it said, but what it didn’t say. Specifically, his plan made no mention of three essential elements of the House Blueprint: border adjustment tax (BAT); interest nondeductibility; and expensing.
Each of these provisions is essential in achieving the revenue neutral economic growth goals of the House plan. Border adjustability and non-deductibility of interest would add more than $2 trillion in revenue to balance the cost of the Blueprint’s tax cuts. Meanwhile, expensing is essential to achieving the Blueprint’s macroeconomic growth objectives.
Not "in" isn’t (necessarily) "out"
BAT: The omission of any border tax from the President’s one-page tax outline should not be read as a rejection of the border tax concept. President Trump and several administration officials recently have acknowledged that they’re still considering a type of border tax they call a “reciprocal tax.”
Interest deductibility and expensing: As a candidate, President Trump initially contended that interest should remain fully deductible and that businesses should also be allowed to expense property and equipment. But, that proposal ultimately gave way to giving taxpayers an election: select either expensing or interest deductibility, but not both. This too was criticized by some as unworkable. By not including either proposal in the President’s plan, the Administration appears to still be evaluating its options.
Where might this leave the Blueprint?
The omission of border adjustability, expensing, and interest deductibility from the President’s proposal doesn’t mean he’s abandoned any or all of these provisions. It does suggest, however, that the Administration is still developing the details of its tax plan, remembering full-well that Congress will be doing the legislating.
Including some form of these three elements in a more fleshed out Administration proposal may well affect the House Blueprint once it’s presented in legislative form and, therefore, enactment prospects for tax reform overall. The Senate, of course, will have its own take on these policy issues with their take needing to be reconciled with the House if tax reform is to advance to the White House.
We may not have an answers until the Administration releases its full budget in the coming months. And don’t be surprised if we’re still left guessing even then.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.