President Trump and Republican tax negotiators rolled out the Republican tax reform plan Wednesday. The individuals involved were National Economic Council Director Gary Cohn, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell, Senate Finance Committee Chair Orrin Hatch, House Speaker Paul Ryan, and House Ways and Means Committee Chair Kevin Brady
“Too many in our country are shut out of the dynamism of the U.S. economy, which has led to the justifiable feeling that the system is rigged against hardworking Americans,” the nine-page plan reads. “With significant and meaningful tax reform and relief, we will create a fairer system that levels the playing field and extends economic opportunities to American workers, small businesses, and middle-income families.”
While Republican leaders and the White House want to complete the entire tax reform plan by the end of the year, Wall Street and political analysts believe a bill could likely pass by early 2018.
The drafted version can be viewed below, provided by Business Insider:
- A 20% corporate tax rate: This will be the first time Trump publicly backs down from his promise of a 15% corporate tax rate, one of his earliest campaign promises. The budget math required for a 15% rate was too difficult, so the somewhat higher rate will be the opening bid. That would still bring the current 35% statutory federal rate down significantly.
- A 25% rate for pass-through businesses: This would apply to people who own their own business. Instead of getting taxed at an individual tax rate for business profits, owners of firms would pay at the pass-through rate. The plan also said it will consider rules to prevent “personal income” from being taxed at this rate. Secretary Mnuchin suggested previously there may be limitations to what types of businesses get this rate. It could apply only to goods-producers and not service-oriented companies, to prevent people from creating limited liability corporations to store their assets and receive a lower rate.
- Elimination of some business deductions, industry specific incentives, and more: There were little details given, but the plan includes language regarding the “stream lining” of business tax breaks.
- A bottom individual tax rate of 12%: The plan is designed to have three tax brackets (for now), with the lowest tax rate being 12%. This will be a slight bump in the bottom bracket, as it now sits at 10%. People currently in the 15% marginal tax bracket are likely included here.
- A middle tax bracket of 25%: It’s not specified what incomes fall into this bracket.
- The top individual tax rate of 35%: That would be down from the current top rate of 39.6%.
- The possibility of a fourth, higher bracket: Due to Trump’s insistence that the taxes for the wealthiest Americans not increase, the plan would reportedly suggest a fourth tax bracket could be added at a rate higher than 35% if the tax-writing committees wish. “An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers,” the plan reads.
- A larger standard deduction: To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would be doubled to $12,000 for individuals — up from $6,350 — and $24,000 for married couples — up from $12,700. These are slightly less than the doubled deduction expected.
- Eliminates most itemized deductions: While not specifically named, the only deduction preserved in the plan explicitly are for charitable gifts and home mortgage interest.
- Vague promises on retirement savings and other deductions: There are sections of the plan referring to retirement savings and other “provisions” but not much detail is given.
- Elimination of the state and local tax deduction: The SALT deduction allows people to deduct what they pay in state and local taxes from their federal tax bill. This deduction is mostly taken by wealthier Americans in Democratic states. Around one-third of the benefits from people using the SALT deduction comes from New York, New Jersey, and California.
- Elimination of the estate tax: Called the “death tax” in the plan, this tax only applied to inherited assets totaling $5.49 million or more in 2017. Very few households pay the estate tax, but it has been a long-time target for Republicans.
- One-time repatriation tax: All overseas assets from US-owned companies will be considered repatriated and taxed at a one-time lower rate, this is designed to bring corporate profits back from overseas. Illiquid assets like real estate would be taxed at a lower rate than cash or cash equivalents, and the payments will be spread out over time. While there was no precise number given in the plan, officials have indicated the rate could end up somewhere around 10%.
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