President Trump has unveiled his proposed Tax Reform Plan that calls for tax cuts and a simplification of the tax code. Below are the some of the key points proposed in the plan:
1. Reduce individual income tax rates: The framework reduces the number of tax rates to just three from seven today. The proposed rates are 12%, 25% and 35%. But it will 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.
2. Increase the standard deduction: The plan roughly doubles the standard deduction, to $24,000 for married couples and $12,000 for single filers.
3. Increase the child tax credit: The framework calls for a “substantially higher” child tax credit, which today is worth $1,000 per child under 17. 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, meaning more people would qualify for it.
4. Eliminate valuable tax breaks: The framework proposes the elimination of most itemized deductions, including the state and local tax deduction.
5. Personal Exemptions: It also eliminates personal exemptions, worth $4,050 per person.
6. Preserve some deductions: Again without specifics, the framework calls for lawmakers to retain tax incentives for home ownership, retirement savings, charitable giving and higher education. But that doesn’t mean lawmakers won’t seek to modify the tax breaks that currently exist in these areas.
7. Repeal the Alternative Minimum Tax
8. Repeal the Estate Tax
9. Reduce corporate tax rate to 20%
10. Reduce tax rates on small businesses and other pass-throughs: The top rate would be 25% down from 39.6% on the profits of pass-through businesses.
11. Change how U.S. multinationals are taxed: Today, U.S. multinational companies pay a 35% tax on overseas profits when they bring profits back to the U.S. The framework calls for a switch to a “territorial system,” where the overseas profits of U.S. companies would no longer be subject to U.S. tax, just to the tax of the government where the money was earned. But to dissuade U.S. companies from artificially shifting their profits to low-tax (or no tax) havens, the framework also would impose a minimum foreign tax, though the rate is unspecified. In addition, it would offer a low, one-time tax rate on existing overseas profits to entice companies to bring that money back too. It’s not yet clear if the tax would have to be paid even if the money isn’t brought back.
12. Expensing of capital investments: 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.
13. Corporate Interest Expense: the deduction for net interest expense incurred by C corporations will be partially limited.
14. Repeal of the Section 199 Domestic production deduction.