On Wednesday, April 26, Director of the National Economic Council Gary Cohn and Treasury Secretary Steven Mnuchin, on behalf of President Trump’s Administration, revealed “core principles” of the President’s tax reform plan. Many of the proposals were similar to those President Trump made on the campaign trail. The goals for his tax reform are to:
- Grow the economy and create millions of jobs
- Simplify our burdensome tax code
- Provide tax relief to American families – especially middle-income families
- Lower the business tax rate from one of the highest in the world to one of the lowest
Many details are still to be negotiated, but the highlights of the plan are as follows:
For Business Taxpayers
- The business tax rate would decrease from 35% to 15% for corporations, and the top tax rate for pass-through businesses (e.g., partnerships, sole proprietorships) would be reduced from 39.6% to 15%.
- There would be a one-time repatriation tax on offshore earnings. The exact percentage of the tax rate is still being negotiated.
- There would be a shift from a worldwide system of taxation (under which a U.S. taxpayer is generally taxed on its worldwide income regardless of where earned) to a territorial system (under which income would generally be taxed in the country where it is earned).
- Eliminate tax breaks for special interests.
For Individual Taxpayers
- The current seven individual income tax rates would be reduced to three: 10%, 25%, and 35%. The income levels at which these rates would apply has not yet been determined.
- The standard deduction would be doubled, with the intended result that fewer taxpayers would itemize.
- The alternative minimum tax (AMT) would be repealed.
- There would be some sort of tax relief for child and dependent care expenses, although no specifics were provided.
- The 3.8% net investment income tax would be repealed.
- The estate tax would be repealed.
- Itemized deductions would be limited. Exceptions would be made for certain provisions involving home ownership, charitable giving, and retirement savings. Secretary Mnuchin said specifically that the mortgage interest deduction would be retained.
- Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers
Revenue Neutrality and Timing
The plan did not include any proposals for raising new revenue to offset that lost by the tax cuts, which could significantly increase the federal deficit. Treasury Secretary Mnuchin has said the cuts will pay for themselves by generating more economic growth. He also indicated that the Administration was determined to “get this done this year.” Throughout the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input and will continue working with the House and Senate to develop the details of a plan that provides massive tax relief, creates jobs and makes America more competitive – and can pass both chambers.
This framework, while far from final, provides a sense for where things might be headed. We will provide updates and analysis as the process evolves.
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