On May 23, 2017 the Trump Administration released a $4.1 trillion FY 2018 budget proposal. The announced budget proposes to balance the federal budget over 10 years, by promoting the following:
- Economic growth through tax reform – this and other policy changes increase growth to 3% annually as opposed to the 1.9% projected by the Congressional Budget Office (CBO).
- Regulatory relief.
- Infrastructure investments.
- Reducing federal spending – proposal is to reduce by $3.6 trillion over 10 years.
Highlights from the Budget
Increases to the federal deficit will be limited to $3.1 trillion over a 10 year period.
The budget also assumes that there will be a small budget surplus will be achieved by 2027. While this differs from the numbers in projected by the CBO, which currently forecasts an increase of $9.4 trillion, the Administration’s Budget makes certain assumptions around savings, including:
- Changes to Medicaid, regulatory reforms, welfare reforms and various mandatory and discretionary spending programs.
- $193 billion saved over 10 years from changes to federal food assistance programs, including new work requirements and changes to eligibility standards.
- $40 billion saved over 10 years from reforms of the earned income tax credit and the child tax credit.
Proposed increases to defense spending.
The Administration’s Budget calls for increased defense spending of $2.6 billion for border security and immigration enforcement in FY 2018. $1.6 billion would be spent on the border wall.
Budget assumes “deficit neutral tax reform.”
The assumption made in the Budget is that there will be “deficit neutral tax reform,” which refers to the work the Administration is currently doing on the tax reform policies announced in April. No further information was provided on those policies that had been announced, which included:
- Moving from seven to three individual tax brackets at 10 percent, 25 percent and 35 percent;
- Lowering the top investment tax rate to 20%, after repeal of the 3.8% net investment tax;
- Increasing the standard deduction;
- Repealing of individual alternative minimum tax;
- Repealing of the estate tax;
- Protecting home ownership, charitable giving and retirement saving.
- Lowering business tax rates to 15% for corporations;
- Moving to a territorial tax system from the current worldwide US tax system;
- Enacting a one-time repatriation tax on accumulated foreign earnings of US companies;
- Repealing “most special interest tax breaks.”
What Happens with the Proposed Budget Now?
While the Budget has been proposed, the House and Senate cannot adopt a new FY 2018 budget resolution until a final action has been taken on the Affordable Care Act (ACA) repeal and replace legislation. There were budget reconciliation procedures included in the FY 2017 budget that will allow the Senate to pass a healthcare bill with a simple majority, instead of the usual 60 votes.
Additionally, Congress will be holding a series of hearings before the House and Senate and begin to draft their own budget plans.
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ABOUT THE AUTHOR
Randy is a Principal and the Tax Director at Brown Schultz Sheridan & Fritz and is one of the key members of the Firm’s Tax Department. He is responsible for managing tax consulting and compliance services for his clients as well as overseeing the tax department.