During a press briefing on April 26, 2017 the White House released the basic outline for the Trump Administration tax reform plan, which they are calling the “the biggest individual and business tax cut in American history”. Based on the brief outline, the changes could be significant. The plan is a slight modification of the Trump campaign proposals from 2016.
One of the most significant changes in the plan is a 15% tax rate on business income for corporations and flow-through income from partnership and S-Corporations. The current corporate tax rate is 35% for businesses, and up to 39.6% on flow through income from partnerships and S-Corporations (taxed at the individual level). Special interest group tax breaks would be eliminated. The plan does not mention anything regarding immediate expensing of capital expenditures or the elimination of net interest deductions.
The White House is looking to move toward a territorial tax system and would not subject foreign source income generated by US companies to US tax. Accumulated earnings from foreign countries would be subject to a one-time charge when the money is brought back or deemed to be brought back to the US. There was no rate for this one-time charge listed in the plan, but the 2016 proposal had suggested 10%. The plan is silent on the border adjustment tax.
For individuals, the tax rates would have three brackets (10%, 25% and 35%) down from seven (ranging from 10% to 39.6%). The alternative minimum tax (AMT) and 3.8% net investment income tax would both be eliminated. The standard deduction will be doubled to $12,700 for a single filer and $25,400 for a married couple filing together. All itemized deductions would be eliminated with the exception of mortgage interest and charitable donations. This would mean medical, state income tax and real estate tax deductions are eliminated. The 2016 proposal had discussed capping itemized deductions, but that is not seen in this plan. The estate tax would be repealed, but the plan is silent on the generation skipping and gift taxes.
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