On September 27th, President Trump and Republican leaders in Congress announced a new conceptual framework for tax reform which they optimistically hope to get enacted into law on or before December 31st of 2017. The proposed conceptual framework broadly describes significant tax law changes affecting both individuals and businesses alike ranging from lower tax rates for individuals and businesses to the repeal of many tax incentives – both deductions and credits. President Trump stated “it is now time for all members of Congress – Democrat, Republican, and Independent – to support pro-American tax reform. It’s time for Congress to provide a level playing field for our workers, to bring American companies back home, to attract new companies and businesses to our country, and to put more money into the pockets of everyday hardworking people.”
Synopsis of the Trump Tax Reform Goals
The Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance have developed a unified framework to achieve pro-American, fiscally-responsible tax reform. The tax reform plan aims to deliver fiscally responsible tax reform by broadening the tax base, closing loopholes and growing the economy.
Just some of the many goals of the Trump Tax Reform Plan include, but are certainly not limited to:
• The Immediate Tax Relief for Middle-Class Families;
• The Simplicity of “Postcard” Tax Filings for the Majority of Americans;
• The Tax Relief for Businesses, especially Start-Ups and Small Businesses;
• The Elimination of Tax Incentives to ship Jobs, Capital, and Tax Revenue Overseas;
• The Broadening of the Tax Base for both Individuals and Businesses; and
• The Elimination of Special Interest Tax Breaks and Loopholes.
The subsequent synopsis details a number of proposed tax law changes under the Trump Tax Reform Plan affecting individuals and businesses alike including, but not limited to:
The Tax Impact on Individuals
• The Elimination of income tax on the first $12,000 of income for individual filers (i.e., $24,000 for married taxpayers filing jointly);
• Above the aforementioned $ 12,000 / $ 24,000 levels, individual taxes would be imposed at three progressive tax rates or brackets: 12%; 25%; and 35%. As the precise effects on different income groups are identified, the tax writing committees may add a fourth and higher income tax bracket during the legislative process to follow in the coming weeks and months ahead;
• The Mortgage Interest Deduction is planned to be Retained;
• The Charitable Deduction is planned to be Retained;
• Most Itemized Deductions would be Repealed including State and Local Income Tax Deductions and Property Tax Deductions;
• Select Tax Credits for Higher Education, Work Incentives, and Retirement Security Benefits are planned to be Retained;
• The Individual Alternative Minimum Tax is planned to be Repealed; and
• The Estate Tax and Generation-Skipping Transfer Taxes are planned to be Repealed.
The Tax Impact on Businesses
• The Corporate Tax Rate would be lowered to 20% and the proposed plan would also aim to eliminate the corporate Alternative Minimum Tax;
• A 25% Tax Rate would apply to certain business income of “small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations”;
• The Immediate Expensing of New Investments in “Depreciable Assets other than Structures made after September 27, 2017,” would be allowed. This provision would apply to investments made in the first five years after the proposal takes effect, and possibly for a longer period;
• The Deduction for Net Interest Expense incurred by C corporations would be subject to partial limitation;
• Many Business-Entity Deductions are planned to be repealed including the highly popular Manufacturing Deduction under I.R.C. § 199; and
• The highly advantageous R&D Tax Credit Program which commenced in 1981 as a temporary provision of the Code and was recently made permanent through the PATH Act of 2015 is planned to be Retained and possibly expanded.
The Trump Tax Reform Plan sets forth a conceptual framework seeking to accomplish a series of policy changes designed to stimulate growth, support middle-class families, create jobs and level the playing field for small businesses and American workers overall. The plan also removes incentives to send jobs and capital overseas and broadens the tax base to provide greater fairness for all Americans. President Trump stated “for several months, my administration has been working closely with Congress to develop a framework for tax reform—over the next few months the House and Senate will build on this framework”.
It should be duly noted that the taxwriting committees (i.e., the House Ways and Means Committee and the Senate Finance Committee) are now tasked with writing tax reform legislation in the coming weeks. As a caveat, both the House of Representatives and the Senate must still compromise and present President Trump with a unified bill before any tax reform can be signed into law which may prove to be overly ambitious to be accomplished before December 31, 2017.
Peter J. Scalise serves as the Federal Tax Credits & Incentives Practice Leader for the Americas at Prager Metis CPAs, LLC a member of The Prager Metis International Group. Peter is a highly distinguished BIG 4 Alumni Tax Practice Leader and has over twenty years of progressive CPA Firm experience developing, managing and leading multi-million dollar tax advisory practices on a regional, national, and global level. Peter serves on both the Board of Directors and Board of Editors for The American Society of Tax Professionals (ASTP) and is the Founding President and Chairman of both The Northeastern Region Tax Roundtable and The Washington National Tax Roundtable, operating divisions of ASTP.