Independent and Data Driven


In The Press


What GOP Tax Outline Means for Advisors and Clients

The broad outline excludes details but still there are items that advisors should start thinking about

The latest Republican tax reform plan is a mixed bag for advisors’ clients.

Those living in high-tax states such as California, New York and New Jersey could face a net tax hike rather than tax cut if the deduction of state and local income taxes from the federal income tax bill is eliminated, as suggested in what the White House and Treasury Department are calling the “Unified Framework for Fixing Our Broken Tax Code.”

The framework doesn’t specify which deductions will be erased but rather indicates which ones won’t be, although that could change: "In order to simplify the tax code, the framework eliminates most itemized deductions, but retains tax incentives for home mortgage interest and charitable contributions," the framework says.

Given the historical antipathy of many Republicans to the state and local tax deduction, analysts expect it is back on the table.

Traders are expecting companies to invest more under a reformed tax regime. But they may be getting ahead of themselves.

New Jersey taxpayers could be especially affected by this change because it, like other high-tax states, would have difficulty raising taxes, and the Garden State is currently operating with a budget that is “deeply out of whack,” says Matt Fabian, partner of Municipal Market Analytics. (Moody’s has downgraded New Jersey’s debt 11 times since Chris Christie became governor in 2010).

At the same time, many wealthy taxpayers in New Jersey and every other state would no longer be subject to the Alternative Minimum Tax, which has precluded them from deducting state and local taxes, says Matt Sommer, vice president of the Retirement Strategy Group at Janus Henderson Investors, adding that any impact is still uncertain.

The lack of specific information on the plan — it is just a framework — makes it difficult for advisors to recommend any specific strategies yet.

Tim Holler