Last week, the Trump administration and congressional leaders released news about a joint framework for tax reform that was (apparently) hammered together by White House insiders, the speaker and the president pro temp of the Senate. This outline provides a very general road map for the House Ways and Means Committee as the long-awaited tax reform package is finalized.
Democrats immediately attacked the outline as a giveaway to the wealthy while totally ignoring the needs of the middle class and the workers in this country. It lowers the corporate tax rate to 20 percent and establishes a 25-percent rate for “pass-through” organizations, such as Subchapter “S” corporations, LLCs and partnerships.
At the individual level, it’s proposed to cut the current seven tax brackets to three with rates of 35, 25 and 12 percent. Its most controversial proposal is elimination of the deduction for state and local taxes, and right behind that is the elimination of the alternative minimum tax.
The standard exemption is doubled for married couples to $24,000 and $12,000 for individuals. Experts have said this exemption will result in many filers being able to file an exceptionally short return, but the details remain to be revealed at a later date.
ABA President and CEO Rob Nichols applauded Congress and the administration for their step forward.
“We are encouraged by their commitment to this critically important issue by lowering rates and broadening the tax base, and look forward to seeing a more detailed plan as the legislative process begins,” he said. “ABA and the nation’s $17 trillion banking industry support comprehensive tax reform and will work with Congress to enact a final plan that grows the economy, creates jobs and reflects our core principles.”
For businesses, it appears the ultimate plan will allow expensing of depreciable assets other than structures for at least five years.
“This is likely a sop to those of us who have genuine concerns about the elimination of the deductibility of business interest expense,” OBA President Roger Beverage said. “Even a partial limitation is problematic for smaller businesses, and the outline suggests that limiting this deduction in some fashion will be included.
“The Speaker has come up with this idea, because he believes the business tax system itself should be converted to one that’s based on ‘equity’ rather than ‘debt.’ Our position so far has been that this change will harm smaller businesses because of the limits they face in going to the equity markets to raise capital. Larger firms don’t face that issue and, thus, small businesses would end up on the short end of the stick. That’s not a good result.”
The proposal apparently will be drafted in a manner that will protect the research and development and low-income housing tax credits. It also includes a one-time repatriation of previously untaxed corporate earnings. Reportedly these earnings are a part of some $3 trillion that’s being held outside of the United States by U.S. companies.