Thought Leadership on Business Ideas for Growth Companies and Growth Consultants presented by Cerini and Associates LLP.
On Nov. 8th, 2016, the U.S. elected Donald Trump as the 45th president of the U.S. A major focus of this election season has been taxes — both Trump’s refusal to release his personal returns and his plan to change the current U.S. tax code. In addition to winning the presidency, the Republican Party also retained its majority in the Senate and House of Representatives. With the president and Congress politically and ideologically in sync, this will more than likely result in meaningful changes in the U.S. tax code during the next four years.
Trump’s proposed tax plan
During the campaign, Trump offered what could be described as a general framework of a tax plan, including new measures and changes he would like to see enacted. These included rate changes, limits on itemized deductions, elimination of tax credits, increased deductibility of child care costs, and increased equipment spending for businesses.
This plan has largely been attacked for being wholly unrealistic in terms of the total cost. The independent Tax Foundation has estimated that it would cost $4.4 trillion to $5.9 trillion on a static basis (without regard to the increased economic activity it may create).
Taxing and spending clause of the US Constitution
Despite all of the rhetoric, the executive branch cannot universally enact a change in the U.S. tax code. The Constitution delegates this authority to Congress, which will be Republican-controlled for the first time since 2005. The president’s wishes, ideas and desires often serve as a template for Congress as it drafts tax legislation, but the office does not hold the authority to set tax law. So while Trump has his aggressive plan, it is unlikely that the final result will look the same.
So what will actually happen?
In what feels like a rarity in politics, it is likely that the actual outcome will be a compromise of the initial Trump plan and what Congressional leaders deem appropriate. There is a strong, vocal contingent of the Republican Party that is concerned with increasing budget deficits, making the huge slashes proposed by Trump a non-starter.