Libby from Green Bay, WI asks: News about President Trump’s tax proposals is all over the place, but I still haven’t been able to make any sense of it. I’m a small business owner. Can you provide a summary of what the proposal says?
Mitch’s Reply: Sure thing, Libby, thanks for writing. Please understand that at Zacks Investment Management, we are not tax advisors – but, the nature and structure of tax policy plays a part in how we make investment decisions. That being said, I can provide you with a summary of what was proposed in the administration’s one-page release. There was not much substance revealed yet, but the general direction of the proposal is fairly clear. They want tax cuts across the board. Of course, nothing is set in stone as I write, and you can think of the tax proposal as more of a “wish list” than a legislative proposal. We are still a long way off from that.
Between now and when an actual bill hits the president’s desk, there are likely to be lengthy and vocal debates in Congress, with a healthy dose of finger-pointing and mudslinging of course. In my opinion, it would be a miracle if a bill was signed into law by October of this year. I think it will take longer.
In other words, and in summary, whatever tax changes are actually passed will probably not take effect until the 2018 tax year, meaning you won’t see the difference until you file in April 2019. Again, a long way off.
For the sake of being thorough and answering your question, though, I’ll break down at least what’s on the table today for tax reform. Again, this is almost certain to change by the time it becomes legislation, but this is at least what the administration has in mind:
All the surface, these proposals may seem sensible and straightforward. But one of the major, overarching issues for progressives will be resistance to tax cuts for large corporations and the wealthiest Americans, and within the Republican party the biggest issue will be how these cuts will add to the deficit (which they will). Without corresponding spending cuts to make the tax plan ‘revenue neutral,’ deficit hawks in the Republican party will have major issues with it.
So that lays the groundwork for the battle that lies ahead, which again is likely to span several months. Grab your popcorn and get comfortable, because this will take a while!
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