Tax Planning In An Unpredictable Environment
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According AccountingToday. Since the TCJA of 2017, surprisingly, US Tax Codes have changed considerably. In addition, COVID-19 necessitated more legislation, including the Families First Coronavirus Response Act and the CARES Act.
⇒ More tax provisions were followed under the American Rescue Plan (2021) and the Bipartisan Infrastructure Act (2021).
⇒ Significant tax provisions included in the Build Back Better Plan were added to the Inflation Reduction Act of 2022.
US politics remain volatile after a decade of solid economic growth, rising inflation, and unpredictable markets during fiercely contested elections, resulting in economic uncertainty.
⇒ Prediction is typically based on the trends of the past and resulting outcomes.
⇒ Tax professionals analyze expected tax legislation and changes in the political environment to inform their tax planning and bring stability to their clients.
⇒ Most likely, the US will be run by a split government. Democrats will control the executive, Republicans the House, and they will share control of the Senate.
⇒ No additional tax legislation is expected to pass through both chambers during this period.
⇒ Apart from extenders and clarifications, changes will probably be made piecemeal as part of bipartisan legislative compromises.
Expectations 2022-2024
The House
⇒ Initial projections indicated a “red wave.”
⇒ Most pundits expect the Republicans to take control of the House.
The Senate
⇒ Optimists say that the republicans might gain control of the Senate.
⇒ Most pundits expect the Senate to remain at a 50-50 split.
Tax Legislation
The RISE and SHINE Act and the EARN Act
⇒ These bills are collectively referred to as Secure 2.0.
⇒ Could pass before the end of 2022.
⇒ It already passed the House with a massive bipartisan majority of 414-5.
⇒ Supported by multiple Republican members of Congress who are not running for a new term.
⇒ Generally expected that these bills will end up in the omnibus spending package for 2023.
Cryptocurrency
⇒ Some new legislation might see the light.
⇒ Blockchain is going mainstream.
⇒ As blockchain goes global, the pressure might build up for tax legislation.
⇒ Most likely, new legislation will be postponed till after the 2024 elections.
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EXPECTATIONS 2024-2026
Assumptions:
⇒ In recent years the US government tended to be less divided during the first two years after a US presidential election.
⇒ The party that wins the White House will likely have a majority in Congress.
⇒ Significant tax changes will become the norm for the party controlling Congress and the White House.
⇒ Senators that are prepared to hold back their vote gain the most power in the legislative process.
⇒ The Baby Boomers will not dominate the electorate for the first time in half a century.
⇒ Millennials and Generation Z will be dominant.
Baby Boomers
⇒ Skeptical of Government.
⇒ Wealthy and focused on protecting their income.
⇒ Do not support social benefit programs.
⇒ The highest position in a career at any age.
⇒ More inclined to vote for long-term goals.
⇒ Negative view of taxation.
⇒ More likely to vote for low-tax candidates.
⇒ Favor lower individual tax rates and brackets.
⇒ Favor lower corporate tax rates.
⇒ Less likely to favor taxing ultra-net-worth individuals.
⇒ Low support for Bernie Sanders.
⇒ Will not support a surtax on multimillionaires.
⇒ Not focused on Student Loan forgiveness.
⇒ Do not support the American Rescue Plan Act that forgives federal student loans tax-free until 2025.
⇒ Environmental policy is not always a significant voting issue.
Millennials
⇒ More favorable view of the government’s role.
⇒ Pessimistic about their financial future.
⇒ Support social benefit programs.
⇒ The lowest position in a career at any age.
⇒ More inclined to vote for immediate gains rather than long-term goals.
⇒ Paying taxes is a patriotic duty.
⇒ More likely to vote for likeminded pro-taxation candidates.
⇒ Favor higher individual tax rates and brackets.
⇒ Favor higher corporate tax rates.
⇒ Especially likely to favor taxing ultra-high-net-worth individuals.
⇒ Strong support for Bernie Sanders and a dramatically lower estate tax exemption.
⇒ Likely to support a surtax on multimillionaires.
⇒ Focused on Student Loan Forgiveness, including a higher student loan interest deduction for married couples above the current limit of $2,500 per return, regardless of marital status. Also strongly approve of changes to how the adjusted gross income formula for income-driven plans is calculated.
⇒ Strong support for student loan forgiveness under the act, tax-free beyond 2025.
⇒ Environmental policy is a considerable voting issue.
⇒ Policies must incentivize carbon-neutral, green energy.
⇒ More credits for companies and individuals to make environmentally friendly changes.
Generation Z
⇒ More favorable view of the government’s role.
⇒ Pessimistic about their financial future.
⇒ Support social benefit programs.
⇒ The middle position in a career at any age.
⇒ Less prone to vote for long-term goals that Boomers and less willing to vote for immediate improvements than Generation Z.
⇒ Paying taxes is a patriotic duty.
⇒ More likely to vote for likeminded pro-taxation candidates.
⇒ Favor higher personal tax rates and brackets.
⇒ Favor higher corporate tax rates.
⇒ Especially likely to favor taxing ultra-high-net-worth individuals.
⇒ Strong support for Bernie Sanders and a dramatically lower estate tax exemption.
⇒ Likely to support a surtax on multimillionaires.
⇒ Focused on Student Loan Forgiveness, including a higher student loan interest deduction for married couples above the current limit of $2,500 per return regardless of marital status. Also strongly approve of changes to how the adjusted gross income formula for income-driven plans is calculated.
⇒ Strong support for student loan forgiveness under the act, tax-free beyond 2025.
⇒ Environmental policy is a critical voting issue.
⇒ Policies must incentivize carbon-neutral, green energy.
⇒ More credits for companies and individuals to make environmentally friendly changes.
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With the recent Reduction Act, Congress preferred influencing environmental protection through tax codes and credits rather than legislation. Some provisions of the TCJA will expire between 2025-2026. Republicans will likely campaign on extending popular provisions like the Qualified Business Income Deduction, expanded standard deductions, and bonus depreciation. Democrats may highlight that the corporate provisions of the TCJA were permanent while individual requirements were not.
⇒ These attitudes will cut across party lines. As a result, both parties will have to incorporate some of these ideas.
⇒ Staying current on trends can help financial planners to remain relevant through changing epochs.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
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