Broad Federal Tax Reform Framework Unveiled

September 28, 2017

With the lack of progress on health care reform, Congress and the Trump Administration officially moved forward this week by unveiling a unified framework for federal tax reform Wednesday. National organizations such as the National Association of Manufacturers (NAM), the U.S. Chamber and the National Federation of Independent Business (NFIB) are applauding the outline.

According to the blueprint published yesterday, “This unified framework serves as a template for the tax-writing committees that will develop legislation through a transparent and inclusive committee process. The committees will also develop additional reforms to improve the efficiency and effectiveness of tax laws and to effectuate the goals of the framework.”

The plan would affect individuals and corporations, but at this point, details are not finalized.

Highlights of the plan include:

  • Increasing standard deduction: Roughly doubles the standard deduction for single taxpayers and married taxpayers, filing jointly.
  • Reduce individual income tax rates: The framework shrinks the number of tax rates to just three from the existing seven. The proposed rates are 12%, 25% and 35%. But it would be up to the tax committees to assign income ranges to each rate. The framework gives tax legislators the flexibility to add a fourth rate above 35% to ensure reform keeps the tax code at least as progressive as the current system.
  • Tax rate structure for small business: The framework limits the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25 percent.
  • Tax rate structure for corporations: The framework reduces the corporate tax rate to 20 percent. Also aims to eliminate the corporate AMT.
  • Expensing of capital investments: The framework allows businesses to immediately write off (or “expense”) the cost of new investments in depreciable assets other than structures made after September 27, 2017, for at least five years. This policy represents an unprecedented level of expensing with respect to the duration and scope of eligible assets.  
  • Interest expense: The deduction for net interest expense incurred by C corporations will be partially limited.
  • Death and generation-skipping transfer taxes: The framework repeals the death tax and the generation-skipping transfer tax.
  • Tax credits/deductions: Elimination of most corporate deductions and credits, including section 199. Retains the research and development tax credit.
  • Global companies: Transition to a territorial system, with a deemed repatriation of accumulated foreign earnings. With respect to the deemed repatriation, the frameworks calls for a bifurcated rate, but does not specify the rate structure. The framework does not provide details on base erosion provisions.
  • Increase child tax credit: The framework recommends to “significantly increase” the child tax credit. It will be up to lawmakers to determine how much higher to make it. In addition, it would raise the income thresholds for eligibility for the credit, allowing more people to qualify.