GOP Releases Tax Reform Framework

The White House and Congressional Republicans have released the Unified Framework for Fixing Our Broken Tax Code. The goals for the Framework, which is described as a template for the tax-writing committees, include providing tax relief for the middle class; simplifying the tax filing process; providing tax relief for businesses (with an emphasis on small businesses); ending incentives to send jobs, capital, and tax revenue overseas; and broadening the tax base, in part by ending special interest tax breaks and loopholes.

For US businesses, the Framework:

• Reduces the corporate tax rate to 20%.
  • Tax-writing committees to address potential abuse by charactering personal income as business income.
• Eliminates the corporate Alternative Minimum Tax.
  • Tax-writing committees may consider methods to avoid double taxation of corporate earnings.
• Establishes a maximum tax rate of 25% for small and family owned businesses conducted as sole proprietorships, partnerships, and S corporations.
• Calls for immediate expensing of investments in depreciable assets (other than structures) after September 27, 2017 for a minimum of five years.
• “Partially” limits deductions for net interest expense incurred by C corporations.
• Envisions the repeal or restriction of special exclusions or deductions, including the Section 199 domestic manufacturing deduction.
• Preserves the research and development and the low income housing tax credits.

For Multinational business, the Framework:

• Transitions to a territorial tax model:
  • Provides a 100% exemption for dividends from foreign subsidiaries (at least 10% owned).
  • Treats accumulated  foreign earnings held overseas as repatriated, with a bifurcated rate for liquid and illiquid assets and payment for the tax liability spread out over several years.
• Taxes at a reduced rate the foreign profits of multinational corporations on a global basis.
• Envisions the adoption of rules to “level the playing field” between U.S.-parented and foreign-parented multinationals.

For individuals and families, the Framework:

• Nearly doubles the standard deduct to $24,000 for families and $12,000 for individuals, while eliminating personal exemptions.
  • Increases the child tax credit and the income levels at which it begins to phase out.
  • Provides a non-refundable credit of $500 for non-child dependents.
• Consolidates the current seven tax brackets into three:  12%, 25% and 35%.
  • Families in the current 10% bracket are expected to benefit from the larger standard deduction, larger child tax credit and additional relief.
  • An additional top rate may apply to highest-income tax payers to avoid shifting the tax burden to the middle class.
• Eliminates the Alternative Minimum Tax.
• Eliminates most itemized deductions, but retains the home mortgage interest expense and charitable donation deductions.
• Retains tax benefits that encourage work, higher education, and retirement security.
• Repeals the estate tax and generation-skipping transfer tax.

Unified Framework for Fixing Our Broken Tax Code