2017 is likely to see significant tax reform. What can we expect? It’s too early to say for sure, but Congress and President-elect Trump have given some hints. Here are the top candidates:
- Elimination of the estate tax. This is nearly guaranteed. What is in question is whether the “step-up in basis” rule will be preserved or whether heirs instead will be required to pay capital gains tax on appreciated assets they inherit.
- Reduction of corporate tax rates. This won’t affect many of our clients, but large multinational corporations could see significant tax changes.
- Reduction and compression of individual income tax rates. Both Paul Ryan and Donald Trump have expressed support for lowering the top income tax bracket and compressing the number of brackets.
- Elimination of the 3.8% net investment income tax and 0.9% Medicare tax surcharge. These are features of Obamacare that affect certain high income taxpayers. They are likely on the chopping block with the new Congress.
- Reduction in tax rates for “flow through” businesses (partnerships and S corporations). This one is intriguing, and is likely to affect a good number of our clients if it happens. Paul Ryan has called for a top income tax rate of 20% on flow through business income, while Donald Trump campaigned for a top rate of 15%. By comparison, the current top rate is 39.6%.
2017 is certain to be an interesting year for tax legislation. Stay tuned!