A Taxing Outlook

The outlook for tax policy in the next year is busy. Discussions of Tax Reform 2.0, a heavy regulatory agenda within the Treasury Department and political calculations related to the mid-term elections make for a lot of moving pieces in the already complicated machine called the Internal Revenue Code.

Tax Reform 2.0

The House Ways & Means Committee is pushing forward on tax law changes that they are calling Tax Reform 2.0. The summaries issued to date indicate that the proposal would make permanent the income tax rate and deduction changes scheduled to expire in 2025, streamline retirement savings accounts and improve the tax treatment of start-up businesses. Many of these proposals are light on specifics, and potentially high in costs, and if the tax reform bill that passed in December of 2017 was Tax Reform 1.0, this bill is perhaps more aptly called Tax Reform 1.1. Regardless, the Senate is showing no appetite to take up this bill if it passes the House, so most observers are viewing this as an opportunity to put down a marker at best and a political exercise at worst.

Regulatory Environment

When Congress passed tax reform in late 2017, it was done at a speed that few had seen in recent years in Washington. Inevitably, this created a host of issues that, to put it charitably, were left open to interpretation. One example in the equipment finance space is the expansion of bonus depreciation to include used equipment. In order to avoid abusive practices, bonus depreciation was limited to a tax payer’s “first use” of said equipment, but for tax purposes is a lessee “using” equipment during the term of a lease if they are not depreciating it? This is one of the thorny issues that the Treasury Department is already working through the regulatory process, and there are many, many more. ELFA is remaining vigilant on this front and is trying to ensure that leased equipment is treated fairly when compared to similarly situated equipment that is owned outright by the end user.

The Political Environment

Providing an outlook for the November mid-term elections is a dicey proposition. Republicans and Democrats both seem to think that the tax reform bill that was passed in 2017 is a net positive for them. In many races, both parties think that the President is a positive for them. In both of these cases, somebody is wrong, or at least a lot more right.

The one thing that we do know is that at least nine (eight Republicans and one Democrat) of the original members of the Ways & Means Committee at the beginning of this Congress will not be members of Congress next year due to retirements, resignations and a primary loss in the case of Joe Crowley (D-NY). There will also be a new Speaker of the House, who is unlikely to share the same passion for taxes and fiscal matters that Speaker Paul Ryan does because, frankly, there are few that could match his passion for fiscal issues. Additionally, if Democrats are able to win a majority in the House of Representatives, several Republicans on the Committee are likely to be among the group of losing Republican incumbents. It’s unclear at this point what the Democrats would do vis-à-vis taxes were they to win the majority, but it’s fair to say that their first steps would not resemble the Republicans’ Tax Reform 2.0.

Buckle up: It’s going to be an interesting next year in the world of tax policy!