Special Alert:Tax Reform Efforts Heat Up
Dear BMSS Clients and Friends,
On Wednesday, September 27th, President Trump gave a speech in Indianapolis to outline his new tax plan. The following day, White House Press Secretary Sarah Sanders and Economic Advisor Gary Cohn held a press briefing (video; transcript) to roll out the framework for tax reform. Similar to the one-page summary of goals for tax reform received on April 26, the framework introduced this week is not a complete, polished piece of legislation. However, it does reveal greater detail about what eventual tax legislation could include. The House Ways and Means Committee and Senate Finance Committee are tasked with writing tax reform legislation in line with the framework.
Below is a summary of some of the key components of the tax reform plan framework as revealed by the two public appearances referenced above.
For individual taxpayers, the framework calls for:
- Three tax brackets: 12%, 25%, and 35% (currently there are seven brackets, ranging from 10% to 39.6%). However, the framework gives congressional tax-writing committees the “flexibility” to add a fourth, higher bracket for high-income individuals. The income levels at which the three brackets would apply were not yet specified.
- Repealing the alternative minimum tax.
- Repealing the estate tax and the generation-skipping transfer tax.
- Consolidating the standard deduction and personal exemptions into a larger standard deduction of $12,000 for individuals and $24,000 for married couples filing jointly.
- Increasing the child tax credit and providing a $500 credit for care of non-child dependents.
- Eliminating most itemized deductions, including the deduction for state and local taxes, while preserving the mortgage interest and charitable contributions deductions.
- Maintaining tax incentives for higher education, retirement savings, and employment.
For businesses, the framework calls for:
- Cutting the corporate tax rate to 20%.
- Taxing pass-through income at a maximum rate of 25%. (The tax-writing committees would be given the task of developing rules to ensure that high-income taxpayers do not use this provision to avoid the 35% bracket.)
- Ending taxation of U.S. companies’ worldwide income and moving to a territorial system. The tax-writing committees would have discretion to write anti-base-erosion measures.
- Establishing a one-time tax on accumulated offshore earnings, which would be taxed at two unspecified rates: One rate for cash and cash equivalents and a lower rate for other assets.
- Limiting the deductibility of interest.
- Eliminating deductions, at the tax-writing committees’ discretion, but retaining the research and low-income housing credits.
- For five years (or more), allowing 100% expensing of the cost of depreciable assets, except for buildings.
Much of the Q&A from the press briefing by Gary Cohn centered on the relative impact on taxpayers in lower, middle, and upper income tax brackets. The answers still had many taxpayers scratching their heads and wondering “What does this really mean for me?”
In reality, the impact is still indeterminable based on the details we have, but we will continue to monitor developments and proposed legislation as it is drafted and keep you informed. As the situation unfolds and more information is released, if you have any questions, please contact your BMSS professional for our insight and advice.
Resources for further reading:
Unified Framework for Fixing Our Broken Tax Code
Trump Proposes the Most Sweeping Tax Overhaul in Decades
GOP Proposes Deep Tax Cuts, Provides Few Details on How to Pay for Them
Details of GOP Tax Reform Framework Revealed
5 Things We Still Don’t Know About the Republican Tax Plan
What’s In and What’s Out: The GOP Tax Reform Proposal