one-time tax abatements. In recent history, large tax cuts were
made in 1981 and 2001, with smaller cuts enacted in 2009, 2010
and 2013.
There are two common avenues to tax reform. The first type
refers to what Congress and former President Ronald Reagan
accomplished in 1986, when they scaled back or eliminated
targeted tax breaks. The result provided the funds necessary
to implement an overall tax rate reduction. The second method
would shift the U.S. tax system from an income-based tax to
a consumption tax. In this scenario, taxes would be levied on
money spent rather than on money earned.
Because it’s easier to cut taxes than it is to reform them, tax cuts
occur much more frequently – even though many are touted as
reform. And since the goal of a tax cut is to (obviously) cut taxes,
the cuts ultimately make it harder to raise the necessary funds
to keep the government running. In fact, the House GOP plan
and the Trump plan, in their current forms, require provisions to
be enacted simultaneously in order to meet revenue and budget
restrictions, which means that if even one provision is dropped
or adjusted, Congress will have no choice but to stall reform ef-
forts until a more viable option is presented.
WHAT HAPPENS NEXT?
While we are likely to see a few provisions make their way
through the legislative branch, we don’t believe comprehen-
sive tax reform is possible – at least for now. That being said,
all this could change tomorrow.
In the meantime, try not to become overwhelmed by the
sheer volume of media coverage on the topic. It’s getting
harder and harder to identify which reports are truthful,
timely and unbiased, not to mention which ones will impact
your business’s bottom line. As reform or cuts become more
likely, your tax advisor will play a pivotal role in ensuring
that you are positioned to reap the benefits of any new tax
structures put in place. Be sure to check the Rea &
Associates website frequently for updates and call your
advisor with any questions you may have.
IS TAX REFORM LIKELY?
By Christopher Axene, CPA, principal,
[email protected] (Dublin office)
President Trump recently said that tax reform is one of the best
opportunities we have to impact our economy. But how likely is
it that tax reform will actually occur?
Tax reform continues to get more than its fair share of media at-
tention, which could naturally lead many of us to conclude that
legislation will be pushed forward soon. However, this probably
won’t be the case, and here’s why: tax reform is time-consuming.
Even when it does happen, like it did in 1986, years’ worth of
work goes into resolving serious differences in opinion. So, the
next time the media runs a story about tax reform just remember
that making an announcement is easy. Enacting reform is not.
This is part one of a three-part series shedding light on how the
new presidential administration and its proposed policies and
reform may impact you and your business.
Learn more about tax reform and how businesses everywhere can prepare for
the coming changes by listening to episode 70 of unsuitable on Rea Radio at
www.reacpa.com/episode-70.
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