Greg Cabral is a Rhode Island managing partner for BlumShapiro, an accounting and business advisory firm. He talks with Providence Business News about the recent tax-reform framework released by the White House and Republican leaders and how it might impact the local business community and the overall U.S. economy.
PBN: What – if anything – surprised you most about the recent tax-reform framework released by the White House and Republican leaders?
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CABRAL: The full proposal is set to be unveiled Wednesday, Nov. 1, so we’ll know more soon. But, so far, in my opinion, the biggest surprises of this story aren’t found in in the tax-reform framework itself – but in various claims coming from the president, his staff and the Council of Economic Advisers. Many people were taken aback when the administration claimed last week that the tax reform would effectively provide the “average American household” with a $4,000 annual raise. More were surprised last week, when a report from the CEA estimated that slicing the corporate rate to 20 percent from the current federal rate of 35 percent would boost U.S. GDP by 3 percent to 5 percent a year – a near-historic increase – over the long-term life of the new tax code. These claims are certainly debatable, and, indeed, they are currently being debated by the country’s leading economists. Time will tell if they hold true, but we wouldn’t advise Rhode Islanders to start budgeting for an extra $4,000 quite yet.
PBN: What part of it do you think would be most challenging to implement? Why?
CABRAL: As we mentioned in this column back in June, the repeal of the estate tax could prove difficult to implement, simply because most states depend on federal estate tax rules to administer their own estate taxes. We saw this situation several years ago, when there was a one-year elimination of the federal estate tax. During that time, various state-level estate taxes remained in place – but several local estate laws continued to refer to the then-repealed federal rules. This created complexity from [an] administrative and compliance perspective. I would expect to see a similar result with the repeal of the federal estate tax.
PBN: What parts of it could have the greatest impact on the local business community? Why?
CABRAL: The first aspect of the framework that comes to mind is the business-tax reduction. If approved, C corporations and other businesses – including S corporations, partnerships and limited liability companies – will see their tax rate sliced to maximum rates of 20 percent and 25 percent. This is a significant reduction in taxes and – in an ideal world – should provide businesses more available profit that they can reinvest toward future growth or expansion plans.
PBN: If approved as proposed, how might it impact the overall U.S. economy?
CABRAL: Well, if the Council of Economic Advisers’ GDP estimation proves correct, it’ll have an enormous impact on the overall U.S. economy. But I prefer the safer answer: At this point, it’s just too early to tell. Like anyone else, though, I certainly hope any tax-reform framework that makes it through Congress will accomplish the president’s stated goal of growing the economy and creating millions of jobs.
PBN: What chance does it have to garner enough bipartisan support to pass Congress?
CABRAL: The most difficult part of this tax reform is finding the revenue to pay for the proposed tax cuts. Deductions such as the state and local tax deductions may need to be compromised for this. The president has stated that certain deductions, such as 401(k) retirement deductions, will not be touched. This will leave lawmakers with significant challenges to find the funding for the sharp tax-rate cuts in the tax-reform framework the GOP has proposed.
Eli Sherman is a PBN staff writer. Email him at Sherman@PBN.com, or follow him on Twitter @Eli_Sherman.
