President Donald Trump’s tax plan pledges to reduce the complexity of the federal tax code, to benefit small businesses, corporations and middle-class Americans.
But how much of what he promised can win approval from lawmakers this year remains uncertain, with a congressional recess looming ahead of the Thanksgiving holiday.
The uncertainty has left local certified public accountants in a wait-and-see mode, before advising clients on what to expect.
“It is still a mass of confusion, to be perfectly honest,” said Steven Ursillo, managing director of West Warwick’s Sparrow, Johnson & Ursillo Inc., a day before House lawmakers were scheduled to finally unveil their version of a bill. Back in 1986, the last time the tax code was overhauled, the same thing happened, he said. People tried to predict what the final law would include, only to see things pulled and added at the last minute.
Because of that experience, Ursillo said he will wait until a bill is signed into law before determining how it impacts his clients.
House lawmakers are expected to begin debating the much-anticipated bill this coming week. But Bloomberg News reported that delays in the unveiling of the bill, at press time expected on Nov. 2, make it more likely Republicans will end up passing simple tax cuts instead of the tax code revamp sought by Trump, said a former House aide who asked not to be named because the discussions were private.
As with most tax changes, some people will benefit while others will feel more burdened than before, predicted Louis M. Diorio, managing partner of Providence-based Goluses & Co. LLP.
“Nobody comes out even on these tax changes. It’s always that someone comes out better, or somebody comes out worse,” he said. “They’re talking about getting rid of the real estate tax deduction. That’s not really fair to someone who has very high real estate tax.”
Called the Unified Framework for Tax Reform, the original plan was released by congressional GOP leaders and President Trump on Sept. 27. Among the biggest changes Trump was seeking:
• The plan proposes to greatly reduce the number of tax brackets, for personal filers, from seven to three, with the tax rate set at 12 percent, 25 percent and 35 percent.
• The standard deduction for individuals and married couples would double, to $12,000 for single filers and $24,000 for couples filing jointly.
• To make up for the doubling of the standard deduction, most itemized deductions would be eliminated, all but the deductions for mortgage interest and charitable contributions.
• Personal exemptions for children and other dependents will be eliminated, replaced by an increase – as yet unspecified – in the child tax credit.
• The Alternative Minimum Tax would be repealed, with the administration making the argument that it creates needless complexity.
• The federal corporate tax rate would be reduced to 20 percent. It now is often described as 35 percent, but corporations pay depending on income levels, from a low of 15 percent to 35 percent.
• Small and family businesses conducted as sole proprietorships, partnerships and S corporations would pay a tax rate of no more than 25 percent.
Criticism that it would chiefly benefit the wealthy has been leveled by Democratic leaders and progressive economic organizations, including the Economic Progress Institute, based in Rhode Island, and the Institute on Taxation and Economic Policy.
In a report issued soon after the framework was released, the Institute on Taxation and Economic Policy determined that in states where the local and statewide taxes are high – including Connecticut and Massachusetts – Trump’s plan would have a disproportionate impact on residents because it will repeal the deduction for state and local taxes paid.
“Taken on its own, repeal of the state and local tax deduction would primarily impact higher-income earners,” the report stated. “In the context of the overall framework, however, its ultimate impact falls more heavily on families in the middle and upper-middle portions of the income distribution. This is because while the taxpayers at the very top of the income distribution would initially be impacted by the repeal, the tax cuts they receive in return for giving up their deduction are more than enough to offset that impact. The framework is far less generous in offering offsetting tax cuts to middle-income families.”
Like Ursillo, other local CPAs say they will wait until the dust settles before discussing with clients.
“What first comes out never ends up becoming law,” observed Anthony Scorpio, a partner with Mullen, Scorpio, Cerilli in Providence.
One purpose of the framework, the simplification of the tax process through the elimination of the deductions, could impact tax-preparation businesses themselves. If approved, it would encourage many filers to take the standardized deduction, rather than itemizing mortgage or charitable deductions.
Vincent Vinci, a partner with Sinel, Wilfand & Vinci CPAs Inc. in Cranston, said he’s had discussions with personal and business customers asking about any changes coming to the tax code. “Everyone is curious. There is a certain dread to see if they’re going to fall above or below the [earnings] line” for tax brackets, Vinci said.
Elimination of the AMT, or alternative minimum tax, would have an impact in Rhode Island, he observed. Many of his clients have had to pay the tax in previous years, largely because of the add-back of state and local taxes.
If those taxes are eliminated as deductions, by definition the AMT would be moot, he said.
