You may want to think of tax reform as a pending storm. First, it is sorely needed; it has been a long time since we had the last real one. Second, even though we see storm clouds gathering, we are not exactly sure when it will start and when it will finish. Third, there are things you can do to prepare, and those have to be undertaken before the brunt of the storm hits. Fourth, you have to be calm and pragmatic while the storm rages about you. Finally, a lengthy cleanup and restoration process will begin as soon as the storm ends. So, prepare for tax reform the way you would prepare for a serious storm.

It's overdue

There are pieces of the current tax rules that people really like (don't believe it? Wait until legislation is introduced that repeals them), but no one even tries to defend our tax code as a whole. Still, tax reform will involve some selectivity. Just as some areas are more drought-prone than others, some parts of the Internal Revenue Code are in more need of reform than others. In particular, there is widespread agreement that the US tax rules that apply to multinational companies and international transactions need to be reformed. Similarly, there is a general recognition that the top US corporate tax rate is way too high, compared to the corporate tax rates of other countries.

Some argue that reform should focus on these areas where reform is most desperately needed. The problem is that the tax rules in one area are inextricably tied to the rules in other areas. This has political and practical consequences. Reforming one area of the tax code but not another suggests favoring one group over others. Can you see Congress and President Trump enacting tax reform for multinational companies but not for small businesses or individuals? Limited tax reform also will encounter practical issues: The corporate tax rules and the individual tax rules interact with each other, and so a change to one set of rules affects the other. Denying or providing deductions to corporations but not to pass-through entities could distort business decisions and reinforce the feelings of unfairness that are driving much of the tax reform movement.

So, even if there is greater consensus about what corporate or international tax reform should look like, it will be very difficult to limit tax changes just to those areas. Any storm large enough to quench parched areas is going to be big enough to inundate places in less need of rain. Storms can simultaneously bring too little rain to some parts and flooding to other parts. One cannot circumscribe where rain falls or where tax changes stop.

Uncertain timing

We expect Congress and President Trump to turn to tax reform early in 2017. We just do not know how long the legislative process will take. Certain key decisions will influence timing:

  • How comprehensive tax reform will be—the greater the scope, the longer it will take
  • The procedural path it will take; adopting the budget reconciliation process, which limits the number of votes needed in the Senate, will speed its consideration but impose constraints on the contents of the tax reform package
  • Whether Republican leaders will seek to build the broadest support possible or pass it with a bare majority; the broader and more bipartisan the support, the longer the process will take but the longer the finished product will last

Just as people are often too optimistic as to how quickly rain will end, it is easy to underestimate how long tax reform will take. The tax rules, whether current or reformed, will be complicated, and multiple drafts of legislation will be needed before concerns are addressed and problems remedied. Building public support and acceptance of a tax reform proposal will take time as well. So take the forecast seriously, but recognize that there will be unexpected developments. They will generally lengthen—not shorten—the process.

Getting ready

What should you be doing now? The short answer is, "everything you will have later wished you'd done." You and your tax advisor need to look carefully at your activities and your current tax situation. Sure, there will be obvious things, but if your review is too superficial, you will overlook something whose presence or absence you will later regret. You also need to review your circumstances with an eye on proposed changes. For example, no review of your tax return, no matter how thorough, will tell you how you would fare under the "border adjustment" rules proposed by House Republicans.

Then you need to monitor legislation, contact members of Congress about aspects of tax reform that you feel strongly about and work with trade associations or like-minded coalitions to retain or change those provisions. There is far greater ability to change a provision the first time it appears in legislative language than the fourth time it appears. Once voting on tax reform begins, members and staff of the House Ways and Means Committee and Senate Finance Committee, the congressional committees charged with developing tax legislation, will have limited time to meet and discuss the details of the various components, especially if tax reform is comprehensive. If you are able to raise meritorious issues and concerns in the formative process, they are much more likely to be accommodated than if the same item comes up late in the process.

What may be obvious to you is not necessarily obvious to Congress or the Treasury Department, and so the timing of making your case is just as important as the merits of your case.

Riding out the storm

How you deal with legislative developments depends on your previous preparation. There are certain things we know in advance, such as that there will be a strong push to reduce corporate tax rates. However, there is much that we will not know until the tax reform process develops further, such as which deductions, exclusions and credits corporations will lose as the price of obtaining those lower rates. The extent of this "broadening" of the corporate tax base will depend not just on the size of the corporate rate reduction but also whether tax reform (or at least corporate tax reform) will be revenue-neutral. Although President-elect Trump's campaign plan was a tax cut, congressional tax reform proposals have typically been revenue-neutral.

Not only do we not know whether tax reform will be revenue neutral, we do not even know how revenue neutrality will be measured. Traditionally, revenue neutrality meant that revenue-raising and revenue-losing changes balanced each other out, and the number of winners and losers were roughly equal. However, "dynamic scoring" would allow a tax package that loses revenue under conventional scoring to be considered revenue neutral due to the increased revenue expected from economic growth generated by the tax reform package.

Further, the more creative Congress is with the baseline for measuring revenue neutrality (e.g., whether expiring provisions are assumed to be extended or whether Obamacare tax provisions are assumed to be repealed), more winners than losers can be created in an ostensibly revenue-neutral bill. This may have an Alice-in-Wonderland quality to it, but in a world where sound bites and talking points predominate, these esoteric decisions can make a difference in whether tax reform stalls or proceeds in Congress.

Because comprehensive tax reform will include changes that you consider favorable and that you consider unfavorable, you will need to keep track of whether the legislation is going in the right direction from your perspective. Whether there is public support for a tax reform package will determine whether it gets sent to President Trump for his signature or Congress has to start anew.

After the storm

After the rain stops and the wind dies down, one inevitably finds things are not where they are supposed to be. The amount of cleanup and repairs depends not just on the intensity of the storm but also on the pre-storm preparations.

Whether tax reform is comprehensive or limited, the number of moving pieces and interactions between the various components means that follow-up legislation will be necessary not just to correct mistakes but also to address unintended interactions. In addition, if comprehensive tax reform is enacted, the Treasury Department will be spending years revising old regulations and issuing new regulations to implement the changes. Some of the implementing guidance will be technical and straightforward, but in many cases Congress enacts a statutory framework and leaves the details to be developed in regulatory guidance. In those cases, battles fought in the legislative arena will be re-fought in the regulatory environment. Thus, legislative gains and losses can be reversed (or strengthened) in the regulatory process, making continued participation in the process important. Enactment of tax reform legislation is the end of the first phase, not the end of the process.


In tax reform as in storms, there is always an element of luck: What is spared and what is decimated can never be predicted with certainty. You can't control chance, but you can prepare in advance, modify your strategy as new developments arise and promptly and carefully deal with the after-effects. Successful tax reform requires individuals and companies to participate in the process. Someone will be telling Congress and the Trump administration what you want and what is best for you. It might as well be you.