Treasury Secretary Steven Mnuchin and White House National Economic Council Director Gary Cohn unveiled Trump Administration principles for tax reform this week. According to the released document, tax reform will include:
Tax Reform for Businesses
- Lowering business tax rates to 15% for corporations. “Small business owner operators” will also be eligible for the business rate.
- Moving to a territorial tax system from the current worldwide US tax system.
- Enacting a one-time repatriation tax on the foreign earnings of US companies. The rate for repatriation has not been determined as of yet.
The 15% business tax rate for pass-through businesses would be limited to “small and medium size” businesses.
Tax Reform for Individuals
- Moving from seven to three individual tax brackets at 10 percent, 25 percent and 35 percent.
- Doubling the standard deduction.
- Repealing of alternative minimum tax.
- Repealing of the estate tax.
- Expanding credits for child and dependent care expenses.
- Restoring a top investment tax rate of 20% for capital gains and qualified dividends by repealing the 3.8 percent net investment income tax rate that was enacted as part of the Affordable Care Act.
The deductions for mortgage interest and charitable deductions would be protected; however the targeted tax breaks that mainly benefit the wealthiest taxpayers would be eliminated.
Considerations of Cost
The cost of enacting this level of tax reform was not provided by the Trump Administration at this time. Senate Majority Leader Mitch McConnell (R-KY) has said he expects tax reform will need to “use a reconciliation vehicle,” alluding to using reconciliation procedures that allow legislation to be pass with a 51-vote majority, instead of the 60 votes generally needed to advance legislation. But, should they use reconciliation, if the legislation would add to the deficit, the legislation would not be permanent after a 10-year time period. Therefore, republican leaders are cautioning the Administration that any tax reform legislation will need to be revenue neutral in order to be permanent, rather than temporary.
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ABOUT THE AUTHOR
Principal & Tax Director
Randy is a Principal and the Tax Director at Brown Schultz Sheridan & Fritz and is one of the key members of the Firm’s Tax Department. He is responsible for managing tax consulting and compliance services for his clients as well as overseeing the tax department.