Tax Reform Proposal Coming This Week from Trump Administration: What It Could Mean for Your Business

With an unsuccessful bid to repeal and replace the Affordable Care Act still resonating, and the debt limit on the horizon, President Trump is set to launch his administration’s bid for tax reform this week.

In addition to the debt ceiling, which must be addressed prior to the beginning of Fiscal Year 2018 (October 1) in order to avoid an historic default by the United States, Congress will need to agree on a budget for the coming fiscal year.  Absent a budget, they cannot address tax laws and projected revenues (a continuing resolution would not be sufficient in this case).

In the current environment in Washington, Republicans are seeking to pass tax reform via reconciliation.  Reconciliation is a parliamentary maneuver that allows certain budget-related items to be considered on an expedited basis, with a 51-vote simple majority required to pass  the Senate.  Generally, major legislation is subject to cloture in the Senate, wherein 60 votes are required to end debate on a measure.  In order to use reconciliation, the proposal cannot add to the deficit over the long term (after a decade).  Using reconciliation would allow Republicans to pass legislation with a straight party-line vote.  Absent the ability to employ reconciliation, prospects for tax reform or reduction in this Congress are negligible.

A key issue among Republicans is whether to focus on “full expensing” or on reducing the corporate tax rate from the current 35 percent to a rate as low as 15 percent.  Full expensing would allow businesses to immediately deduct the full cost of capital expenditures from their taxable income – a provision that would prove particularly useful to small and mid-sized businesses and which would stimulate purchasing and growth, according to supporters.    

More conservative members of Congress and advocates favor reducing the corporate rate as a means of keeping more profit and investment in the United States and to stimulate economic growth.

Given likely necessity to rely solely on Republican votes – hence the use of reconciliation – it is unlikely that leadership would advance a measure that incorporates both a reduction in rates and full expensing.