From a tax policy standpoint, most of the focus in 2017 will be on legislative changes. President-elect Trump and Republicans in Congress have repeatedly stated their goal of repealing and replacing the Affordable Care Act and enacting comprehensive tax reform.
If the new administration and Congress enact a full repeal of the Affordable Care Act, then they will repeal a variety of tax provisions, including controversial provisions that fund the Affordable Care Act, such as the 2.3% medical device tax and the 3.8% tax on net investment income. The medical device tax has been delayed until 2018, but other tax provisions, such as the additional Medicare tax and the tax on net investment income, apply currently. So, whether the repeal of Obamacare is immediate or delayed affects whether taxpayers will continue to be subject to these provisions in 2017. Similarly, any replacement of the Affordable Care Act will necessarily include tax changes as well. Because the Affordable Care Act is expected to be one of the first items addressed in the new Trump administration, answers to these questions should come early in 2017.
Tax reform, on the other hand, will likely consume the entire legislative year. Granted, there are suggestions to do tax reform in stages, e.g., international tax reform first, or corporate tax reform before individual tax reform. Reforming one part of the Internal Revenue Code without knowing what you plan to do to another, related part of the code is politically and technically treacherous, however. From a political standpoint, enacting legislation that benefits multinational corporations without also benefiting the middle-class would suggest that, despite the election, nothing has changed in Washington. From a technical standpoint, changes made to one part of the tax law has effects on other parts of the tax law. If one makes changes to one part of the code and later makes structural changes to another part, one has to go back and revise the first part to reflect those later changes. That may not sound like a big deal, but revisiting recently enacted legislation is always problematic—especially if the previously-enacted tax reform legislation reflects a careful balance of compromises and trade-offs—since the re-opening process invites re-fighting of old battles. So, both political and pragmatic forces will push Congress and the administration to seek comprehensive tax reform, despite attempts to enact narrower tax reform. The Trump administration and Congress will have to decide whether tax reform will be revenue-neutral (as in the House Republican Blueprint) or revenue-losing (as in the Trump campaign proposal) and whether it will be bipartisan. Those decisions will drive much of the design and process of tax reform.
From a regulatory standpoint, the Trump administration’s focus in the first part of 2017 will be on which regulations issued during the Obama administration should be revoked or suspended. First, regulations promulgated under the Obama administration—especially those that involve a change in policy—will be under scrutiny, whether they were published before the inauguration or not. Although Congress could overturn regulations through the congressional Review Act, it is much easier (assuming Congress and the administration agree on the specific regulations) for a Trump Treasury Department to issue a Notice announcing an intent to withdraw or suspend the particular regulation, followed by the appropriate administrative action. Second, new regulatory guidance will slow to a trickle, with the only regulations published in the first part of the Trump administration being finalization of expiring regulations whose lapse would create uncertainty or hurt taxpayers. The regulatory agenda adopted by the Obama Treasury Department became obsolete on the night of the election. The Trump administration will have a positive regulatory agenda soon enough, however. If Congress and the Trump administration enact tax reform, the regulatory process for the next few years will be fully occupied with issuing regulations to implement those changes.
