Trump Administration Unveils New Tax Reform Plan to Lower Business Taxes and Simplify the Tax Code

On Wednesday, April 26, 2017, the Trump administration revealed an outline of a proposed tax reform package that aims to simplify the tax code, lower the business tax rate, and grow the economy. The outline highlights principles for tax reform that are largely similar to statements candidate Trump made during the campaign with one significant difference for multinational businesses. It also identifies next steps where it will continue to work with members of the House and Senate to draft legislation based on the proposal and develop the details of how the principles would apply to individual and business taxpayers.  

Here are the key points addressed in the proposed plan and how those points differ from President Trump’s original campaign proposal and the House Republican tax reform blueprint (the “Blueprint”):

Businesses

The corporate tax rate would be lowered from 35 percent to 15 percent.This is consistent with President Trump’s campaign proposal, but is slightly lower than the 20 percent rate proposed by the Blueprint.

A 15 percent tax rate would apply to business pass-through entities. Similar to corporations, the proposal would permit entities organized as pass-throughs to tax income at a 15 percent tax rate. Income from these businesses is currently taxed at the individual rates. This is consistent with Trump’s campaign proposal and less than the 25 percent rate proposed in the Blueprint.

“Special interest” tax provisions would be eliminated. The proposal calls to eliminate “special interest” tax breaks, though none are specifically identified. This statement is similar to statements made during the campaign and in the Blueprint, with both noting elimination of these provisions but retaining the R&D tax credit.

INTERNATIONAL OPERATIONS

The worldwide tax system would be replaced with a territorial system. This proposal, which was not previously included in Trump’s campaign proposal, would mean that multinational businesses would only be taxed on income related to the United States, a significant change from the current system. Generally, it would allow foreign earned money to be reinvested in the United States without additional tax cost. This proposal is in line with the Blueprint.

A one-time tax would also be imposed on repatriated profits overseas. The proposal did not specify a tax rate for the repatriation of these previously untaxed earnings, simply noting that they would work with Congress to determine a “competitive” rate. The Trump campaign had proposed a 10 percent rate while the Blueprint included rates of 8.75 percent (earnings in cash) and 3.5 percent (other earnings).

Individuals

There would be fewer tax brackets. The number of individual tax brackets would be reduced from 7 to 3, including a 10 percent, 25 percent, and 35 percent bracket. Importantly, the proposal does not indicate the level of income that would be taxed at the different brackets. These rates differ slightly from the Blueprint and President Trump’s campaign proposal in that both had individual tax bracket rates of 12 percent, 25 percent, and 33 percent.

The standard deduction would double for individuals. In 2017, the standard deduction is $6,350 for single filers and $12,700 for married couples filing jointly. The proposal to double the standard deduction is similar to the Blueprint that proposed a $12,000 deduction for single filers and a $24,000 deduction for married couples filing jointly. President Trump’s campaign originally proposed a $15,000 deduction for single filers and a $30,000 deduction for married couples filing jointly.

Most itemized deductions would be eliminated, except for mortgage interest and charitable contributions. State sales and income tax deductions would also no longer be available. This mirrors the Blueprint and is in line with President Trump’s campaign proposal.

Relief for families with child and dependent care expenses. The proposed plan does not provide any details on how this relief would be provided, however. Trump’s campaign proposal included a new deduction and other tax benefits for child and dependent care. The Blueprint includes an enhanced child and dependent tax credit.

Repeal of the 3.8 percent Net Investment Income Tax (NIIT), the Alternative Minimum Tax (AMT) and the Estate Tax. The 3.8 percent NIIT, implemented as part of the Affordable Care Act, would be eliminated. This tax generally applies to individuals with adjusted incomes above $200,000 ($250,000 for married filing jointly). Both the Trump campaign and the Blueprint had proposed to repeal the 3.8 percent NIIT, the AMT, and the Estate Tax.

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Any potential tax reform will likely have a significant impact on you or your business. We’ll keep you updated on any relevant information as it becomes available.

If you have any questions or would like to better understand how the proposed tax changes could potentially affect you or your business, contact your Moss Adams professional.

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