Richard Goldstein Richard Goldstein
This time of year clients and friends are asking me my view on tax changes. Should they defer income to 2017 (not a bad idea)? Should they close a merger now or wait to 2017? Why was my 2015 tax return rejected because the IRS said I already filed it?

I have no inside track on tax reform. However, with a Republican Congress and President, I believe there will be some form of reform. First, I don't believe that Donald Trump is a Republican. I know he ran on the Republican line, much the same as Mayor Michael Bloomberg ran on the Republican line for Mayor, but this does not mean Bloomberg or Trump are Republicans. In fact, I believe that Trump is more liberal than conservative and is an independent. I believe he's squarely in the middle with no real loyalty to the Republican Party. Time will tell, including who he picks for the Supreme Court.

Recently, Stephen Moore, a Heritage Foundation fellow and advisor to the Trump Campaign, said he would recommend that Trump pursue tax reform along two tracks, by focusing on business taxes in his first 150 days and leaving the politically more challenging task of reforming individual taxes for later.

In my view, if you think there will be a flat tax, you are wrong! The Internal Revenue Code is both a political and economic law. Yes, it has special interest provisions, but it also supports our economy and is intertwined with business, corporate, partnership, international tax and trust and estate provisions to name a few. It's just too complex to start over. Yes, there are things on my wish list: eliminate the alternative minimum tax, increase the standard deduction and allow a 100 percent deduction for non-reimbursed medical expenses.

Trump’s proposal would reduce the official corporate tax rate to 15 percent from 35 percent (I do not see this happening; I would reduce the corporate rate to 25 percent over a phase in period), allow corporations to repatriate overseas profits at a 10 percent rate and reduce the top tax rate for individuals from 39.6 percent to 33 percent (I believe this is doable). I'm in favor of a one-time benefit to repatriate profits to the U.S. at a reduced rate. I believe 10 percent is just too low considering that repatriated foreign earnings in most cases enjoy the benefit of certain foreign tax credit provisions that reduce the cost of repatriation.

Moore estimated that the cost of the cuts would lead to a revenue loss of about $3 trillion over 10 years for which Trump would compensate with spending cuts (it will have to be BIG spending cuts, in my view). The theory is the cuts will broaden the tax base by adding 1 percent of growth to the US economy. So, Trump wants to pass a tax cut bill and then make up the difference by cutting government spending.

Some analysts have warned of a bigger problem. The nonpartisan Tax Policy Center forecasts that the Trump plan would cause the Federal debt to soar by $7 trillion over the first decade, including interest costs and macroeconomic effects.

According to Moore, Trump and Congress would be able to get this passed as a job creation bill by linking corporate tax reform to infrastructure spending. The combination would also increase the chances of gaining support from Democrats, who have favored such a link.

Moore estimated that taxing repatriated overseas profits could raise $100 billion to $150 billion for infrastructure spending. U.S. corporations are estimated to have $2.6 trillion in profits overseas. A prediction: U.S. corporations will not repatriate back unless Congress address the issues of why these companies keep funds overseas and make it more attractive to repatriate in the long term. I do not feel we can sustain at a 10 percent rate over time.

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Richard Goldstein is a partner at Buchbinder Tunick & Company LLP, New York, Certified Public Accountants.