As a Crisis brews in the Caribbean, Chaos Returns to Congress
By Beckett Horner, J.D., LL.M. in Taxation
Hurricane Irma, an historically powerful and potentially devastating hurricane, continues to strengthen in the Caribbean, and we would like to extend our well-wishes to everyone in its path. As long-standing residents of Florida, we know how serious these storms can become, and we hope everyone stays safe and is taking proper precautions, preparing for the worst, and praying for the best. We are keeping a close eye on the storm, and are available to provide any help we can.
Just as Hurricane Irma has continued to form over the last few days, so too has Congress started to rustle back to work in Washington after the summer recess. Next on the agenda for the Republicans is a stab at tax reform, but it has become apparent that tax reform may take a different form than it had during President Trump’s campaign.
The Republicans were unable to repeal the Net Investment Income Tax, the 3.8% surtax on Net Investment Income charged to high-income tax payers in the highest 39.6% income tax bracket. This tax, informally called the “Obama Care Tax,” was implemented as a funding mechanism for the substantial medicaid expansion brought about by the Affordable Care Act and was the main reason the ACA passed muster in the Supreme Court. Because the Net Investment Income tax is here to stay for now, it must be counted as part of the tax revenue base, which will make deficit-neutral tax reform more difficult.
Because the road to tax reform has become more difficult than previously thought, some major players in the Republican debate have seemingly abandoned any substantial tax reform for high-income taxpayers, which could mean little or no change to the top rates and which most likely means the Estate Tax will remain a part of the tax code, for now.
Steve Bannon, the President’s former Senior Advisor, previously suggested to colleagues that the tax rate for high-income taxpayers “should have a 4 in front of it” (according to Jonathan Swan of Axios). More recently, Congressman Kevin Brady, Chairman of the House Ways & Means Committee, compared the Republicans’ efforts at tax reform with the tax reform of 1986 under President Reagan, which left transfer taxes intact. Senator Orrin Hatch, Chairman of the Senate Finance Committee, has openly stated that high-income tax payers will not benefit much from their efforts at tax reform.
What this means in the broader sense is that Republicans are targeting deficit-neutral tax reform that may benefit lower- and middle-income families while maintaining rates for high-income families. Most likely, Estate Tax Repeal will not be a major component of immediate efforts for tax reform. As is always the case with any legislation, the road to tax reform will certainly be a curvy and unpredictable one, and we will keep you updated as information makes its way to us. In the meantime, do not hesitate to call or email with any questions or comments, and please stay safe during the storm! firstname.lastname@example.org, (772) 234-5500.