Tax Reform Outline Released
The Republican-sponsored tax reform proposal released on Wednesday is being touted as the most radical change to the nation’s tax code in decades. According to the nine-page outline of the “Unified Framework for Fixing Our Broken Tax Code,” these proposed changes include:
- Doubling the standard deduction for individuals to $24,000 for married filing jointly, $12,000 for single filers and eliminating personal exemptions.
- Consolidating the seven individual tax brackets into three: 12%, 25% and 35%, with the possibility of a higher top rate and measuring inflation adjustments “more accurately”.
- Increasing child care tax credits.
- Repealing the alternative minimum tax (AMT).
- Unstated “enhancements” to encourage savings for retirement.
- Repeal of many other exemptions, deductions and credits currently available to individuals.
- Repeal of the death tax and generation-skipping transfer tax (no mention of what happens to gift tax).
- 25% maximum tax rate on business income of sole proprietorships, partnerships and S corporations.
- 20% maximum tax rate on corporations, and eliminate the corporate AMT, as well as other changes that reduce double taxation of corporate earnings.
- 100% expensing of new investments in depreciable assets (other than structures) made after Sept. 27, 2017, for at least five years.
- Limit the deduction for net interest expense by corporations and possible changes to interest deductions by non-corporate taxpayers.
- Eliminate §199 domestic production deduction and repeal other special exclusions and deductions, but preserve R&D credit and low-income housing credit.
- Replace U.S.’s current worldwide taxation system with 100% exemption for dividends from foreign subsidiaries in which a U.S. parent owns at least a 10% stake, and provide transition rule to treat foreign earnings that have accumulated overseas as being repatriated (with lower rates for earnings held in illiquid assets and the ability to spread out income tax liability on deemed repatriated earnings over several years).
- Reduce tax rate on foreign profits of U.S. multinational corporations.
Obviously, the devil is in the details, which will be fleshed out over the coming months as the Ways and Means and Senate Finance Committees consider how to implement the proposals. Also, the $5 trillion price tag of these changes must be paid for in some way, which remains unstated at this time. More when there is more!