Here are more reactions by wealth management firms to the Trump tax cut proposals.

As the Trump administration continues to make pronouncements about its tax plans, so wealth managers have continued to comment on the proposals. To see the previous news item about how the sector views ideas on slashing corporate taxes and reducing some personal rates, see here. 

Here are some more reactions:

Stroock Personal Client Services Group partner Kevin Matz
President Trump’s tax plan calls, among other things, for the repeal of the 'death tax.' Interestingly, the President’s plan appears to abandon an offsetting revenue-raising feature of the 'death tax' repeal plan that had appeared on his campaign website, which proposed that capital gains held until death and valued over $10 million will be subject to tax.

The sparseness of the President’s plan raises a whole host of additional questions such as (1) would the President’s plan be coupled with a step-up in basis at death versus carryover basis (carryover basis would effectively increase total taxes for most married couples with under $11 million in total wealth),  would the gift tax remain intact (presumably it is needed to prevent a massive erosion of the income tax base), and (3) what would happen to the generation-skipping transfer tax.  

The incompleteness of the President’s proposal gives me the sense that it may have been thrown in as a bargaining chip to be readily peeled away when push comes to shove in favor of the Administration’s higher priorities -- such as achieving a substantial reduction in the business tax rate, the repeal of the alternative minimum tax, and the repeal of the 3.8% Obamacare tax.

High net worth individuals must continue to plan in the face of this uncertainty, which in a nutshell means maximizing flexibility within their estate plans, and steering clear of making taxable gifts that could create exposure to gift tax.

Phillips Nizer partner Alan Behr
President Trump's proposals for tax overhaul rekindle in part proposals made by the Reagan and George W Bush administrations and also add new elements, all of which may well prove controversial even to fellow Republicans. The simplification of the Tax Code is an idea now decades old.  It is widely understood that it could only have a chance of working if the menu of deductions is also drastically reduced, which is also an element of the administration's proposal. However, there remains broad skepticism within the financial and economic communities about whether that would work in the near-term and even greater skepticism about what would happen should deductions creep back into the tax code over time. 

The opportunity for any change to take place could well rest upon whether President Trump will release his tax returns, which his administration has again stated he will not do. There is considerable belief -based upon what is understood to be Mr. Trump's likely tax position–that key elements of his tax reform proposals, including, most notably, the removal of the alternative minimum tax, could significantly benefit him personally.

The removal of the estate tax has long been discussed in legal, financial and academic circles. It generates a small portion of federal revenues and is generally considered to be a method of controlling wealth transfer–a kernel of socialism in the capitalist system, if you will. Its removal could well help solidify the retention of wealth by high-net-worth families and, across a broader spectrum, reduce the need for tax lawyers and tax accountants. The proposal may therefore encounter resistance from a number of constituencies.

Russel Matthews, senior portfolio manager at BlueBay Asset Management
On our [company] trip [to Washington DC], we picked up very clear signals that delivery of substantial tax relief to Americans is the primary goal of both the Trump administration and the Republican Congress. There has been a lot of lip service paid to budget neutrality, and ensuring that any tax reform is paid for. We have high conviction that tax cuts are far more important than budget neutrality and if it is necessary to fund them through deficit spending, so be it. What is not going to change is the dysfunctional nature of policy making in Washington in general; it is going to remain messy and noisy.

Harm Bandholz, UniCredit chief US economist
The legislation that financial markets are most eagerly awaiting is undoubtedly tax reform. And this week, the White House took leadership of the debate by releasing some broader principles for the new tax system, including first indications of how much the president wants to cut corporate and individual income tax rates. It will, however, take another several months before we see a comprehensive and detailed blueprint; Budget Director Mulvaney talked about June, while Treasury Secretary Mnuchin seemed to have some doubts that it can get done before the end of the summer.

In particular, Republicans still need to agree on whether the tax reform should be deficit neutral or not. The president has clearly stated he prioritizes lower tax rates over deficit concerns. But the proposed cut in the corporate tax alone (to 15%) would increase the deficit over the next decade by more than USD 2 trillion. And that number does not even include lower taxes for so-called ‘pass-through businesses’ (small businesses that pay individual income taxes rather than corporate-level taxes) and private households, which will add another couple of trillions.

The bipartisan Tax Policy Center estimated last year that the plan that President Trump proposed during the campaign, and which in several ways is echoed by this week’s memo, would cost the government $6.2 trillion in the first decade. While Secretary Mnuchin stated that the tax cuts will pay for themselves as lower rates spur growth, there is agreement among analysts and economists outside of the administration that the Congressional Budget Office and Joint Committee on Taxation, who are responsible for the dynamic scoring of the reform bill, will not come to the same conclusion. Unfortunately, the Laffer Curve simply does not work as well as we all would wish!

Whether the tax reform is revenue neutral or not has important procedural ramifications for the legislative process. The reason is that tax cuts that do not pay for themselves either need to be temporary, so that they do not affect the deficit after ten years (like the Bush tax cuts), or require 60 votes (i.e. Democratic support) in the Senate. But only temporary tax cuts for corporations are unlikely to be as effective in stimulating investment projects, and Democrats have already signaled that they are not inclined to give large tax cuts to corporations and wealthy individuals, if at the same time the less affluent lose access to health care and get fewer benefits from the tax cuts.

Another unresolved issue is whether the corporate tax reform just means lower rates, or includes a shift towards a border- adjusted cash flow tax (the former being much more likely as the White House endorsed a shift to a territorial system). Despite these and other difficult and still unanswered questions, we still want to believe that tax reform will be enacted before the end of the year. But in any case, the size of the rate cuts will be much smaller than currently envisaged by the president, and most likely he will have to settle for temporary tax breaks.