On December 19, 2017, the House and Senate approved final passage of the Tax Cuts and Jobs Act (H.R. 1). The law provides $5.5 trillion in tax cuts with $4 trillion in offsetting tax increases. This leaves a net $1.5 trillion of unfunded tax cuts. Republicans predict the tax cuts will propel the economy to a robust 2.9% annual growth rate, increasing wages and taxes to make up the deficit. Many economists and politicians are skeptical this will happen. The non-partisan Joint Committee on Taxation, the government economists, predicts the tax cuts will result in approximately $483 billion of economic growth (less than 1% on average over the next decade) offset by an increase of $55 billion in interest on the debt to finance the legislation’s addition to the deficit.
Over the years, I have observed estimates of growth, revenue, and costs related to numerous tax bills by politicians on both sides of the aisle and Congressional economists who advise Congress. The only certainty is that economic predictions by any of these groups will inevitably vary widely from predictions and estimates. Our economy is simply too big and complex and often impacted by world events to predict outcomes 10 years into the future with any reasonable level of accuracy.
Regardless of where you come out on the politics of tax reform, keep in mind the relative balance in power is likely to change in Congress over the next eight years when many of the individual tax cuts sunset for budget reconciliation reasons. What we can say for sure is that tax reform — and how to address the sunsetting provisions — will be a topic for political parties in every Congressional election through 2025. In addition, Ways and Means Chairman Brady is signaling the need for a massive technical corrections bill to fix drafting and other errors he anticipates will surface after passage. The passage of this bill will also trigger an avalanche of regulations to help taxpayers comply.
Many will criticize the bill as catering to special interests. In fact, a wide variety of industries received tax breaks including small craft brewers, mead producers (honey wine), film and TV producers, private aircraft maintenance, and lodging to name a few of the more interesting ones. When I hear this, I am reminded of the late United States Senator Russell B. Long who said “A [tax loophole is] something that benefits the other guy. If it benefits you, it is tax reform.”
For now, it is important to focus on what is in the final deal and how to maximize its benefits to your personal and business tax situations. The law includes many significant policy changes and myriad effective dates and sunsets, thus putting a premium on up-front planning. We highly recommend you seek expert advice before undertaking any action with respect to the tax changes in relation to your own tax situation. See the Individual and Business Tax Highlights diagram for details on the tax changes.
Tax Planning Considerations
Boston Private is pleased to announce a partnership with Doug Fisher, a Washington Policy expert, who will offer a series of insights into a number of reform proposals making their way through Congress in 2017. Doug is Director of Retirement Policy at the American Retirement Association and consults with businesses on Washington Strategies and Planning. In this role, Doug works with the ARA membership and other private companies to protect, advise and grow their businesses through ideation and advocacy in the benefits area. Before joining ARA, Doug led Fidelity's legislative policy and thought leadership development teams involving retirement, health and welfare benefit plans. Doug has advised many Fortune 1,000 companies on the impact of legislation and regulation on the design and delivery of benefits. Before joining Fidelity, Doug served as tax counsel to the U.S. Senate Finance Committee and was involved in writing the pension, health and insurance provisions of the Small Business Job Protection Act of 1996; the Balanced Budget Act of 1997, including the Roth IRA, Simple retirement plan, medical savings account (predecessor to the health savings account); and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
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