The "Big Six" issued their "Unified Framework for Fixing Our Broken Tax Code". The framework is intended to give a template for the tax-writing committees to develop tax reform. The framework is also consistent with President Trump's four principles for tax reform:
- Make the tax code simple, fair and easy to understand
- Give American workers a pay raise by allowing them to keep more of their hard-earned paychecks
- Make America the jobs magnet of the world by leveling the playing field for American businesses and workers
- Bring back trillions of dollars that are currently kept offshore to reinvest in the American economy
The nine page framework is very similar to the one page document that President Trump issued in April 2017. Below are the highlights of the framework:
- Reduce the existing seven tax brackets to three (12%, 25% and 35%), with the possibility of an additional top tax rate for the highest income taxpayers to ensure the tax code does not shift the tax burden from high income to lower and middle income taxpayers.
- Double the standard deduction to $24,000 for married taxpayers filing jointly, and $12,000 for single filers.
- Repeal of the personal exemption for dependents, while increasing the Child Tax Credit. This will include increasing the income levels at which the credit begins to phase out.
- Provide a non-refundable credit of $500 for non-child dependents.
- Maintain the home mortgage interest and charitable deductions while eliminating other deductions.
- Repeal the Alternative Minimum Tax.
- Encourage the committees to simplify tax benefits related to work, higher education and retirement, while improving their efficiency and effectiveness.
- Repeal of the estate tax and generation skipping taxes.
- Review of other exemptions, deductions and credits, with the possibility of repeal to make the system simpler and fairer.
- Maximum rate of 25% on business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations.
- 20% tax for corporations, with the elimination of the Alternative Minimum Tax. The framework also encourages the committees to consider methods to reduce the double taxation of corporate earnings.
- Allow immediate expense of the cost of new depreciable assets, other than structures, made after Sept. 27, 2017, for at least five years.
- Partially limit the amount of interest expense deductible by C corporations. The committee will consider the appropriate treatment of interest paid by non-corporate taxpayers.
- Elimination of the domestic production deduction (Section 199). In addition, similar to the individual provisions, other special exclusions, deductions, and credits are to be reviewed and possibly repealed or restricted. The research and development and low income housing credits are to be preserved.
- 100% exemption for dividends from foreign subsidiaries in which the U.S. parent owns at least 10%.
- Current earnings that are being held overseas and not taxed would be considered repatriated. It is unclear the tax rate that would be applied to these repatriated earnings.
While this framework provides a little more detail than the proposal in April, there are still a lot of unanswered questions. There is still much to be negotiated within the committees and ultimately Congress, but we will keep you informed throughout the progression of this tax reform. If you have any questions, please contact your local UHY LLP professional.