“JCT” refers to the nonpartisan Joint Committee on Taxation which produces all revenue estimates for Congress.
“CBO” refers to the nonpartisan Congressional Budget Office.
“TPC” refers to the nonpartisan Tax Policy Center.
Tax Reform Timeline
- Sept. 27, 2017: Trump Administration, House and Senate GOP released a “Unified Framework for Fixing our Broken Tax Code.”
- Tax Framework
- One-page summary
- Preliminary Analysis by nonpartisan Tax Policy Center
- FedWeb Tax Expenditures page (for background on potential offsets for tax cuts)
- Procedural Requirement: The tax bill cannot proceed as a GOP-only filibuster-proof “Reconciliation” bill unless Congress first adopts an FY 2018 Congressional Budget Resolution.
- Cuts Taxes for Upper Income Americans by reducing the top individual rate from 39.6% to 35%, eliminating the Estate Tax, reducing the corporate and pass-through rates, and eliminating the Alternative Minimum Tax. (The estate tax currently impacts very few Americans and is paid only on estates worth more than $5.5 million.)
- Doubles the Standard Deduction (to $24k for joint filers and $12k for single filers) and merges the personal exemption into the larger standard deduction. Consolidates the current seven brackets into three (12%, 25%, and 35%). Increases the Child Tax Credit (no details). Tax “committees will work on additional measures to meaningfully reduce the tax burden on the middle-class.” (No details.)
- Calls for eliminating “most itemized deductions.” No details, but claims to protect mortgage interest and charitable contributions. Previous statements have proposed eliminating the state and local tax deduction. (Under current law, taxpayers who itemize deductions on their federal income tax returns can deduct state and local real estate and personal property taxes as well as either income taxes or general sales taxes. The deduction costs the federal Treasury about $1.3 trillion over 10 years, according to the nonpartisan Tax Policy Center.)
- Distribution of the Tax Cuts: In their preliminary analysis, the nonpartisan Tax Policy Center estimates that under the new tax structure, in 2018, 50% of the total tax benefit would go to the top 1 percent, increasing to 80% of the total benefit by 2027; and after tax income in 2027 would increase between 0.2% and 0.4% for the bottom 80% of taxpayers, while the top 1 percent would see their income increase 8.7%.
- Cuts Corporate Income Tax Statutory Rate from 35% to 20% and eliminates Corporate AMT. (Note: the statutory rate is irrelevant for many corporations; the GAO reported that profitable corporations paid an effective rate of only 12.6% in 2010 due to credits, exemptions, and offshore tax havens.)
- 25% for Pass-Through Businesses: Proposes a 25% rate for pass-through businesses (sole proprietorships, partnerships, and S-corporations). Critics are concerned that wealthy Americans would restructure income to take advantage of pass-through rates.
- Full Expensing: The framework allows businesses to immediately write off (or “expense”) the cost of new investments. (Full expensing is the treatment of a capital expenditures as an operating cost so that deductions can be taken immediately.)
- Business Deductions and Credits Reduced: Proposes to partially limit the deduction for net interest expense incurred by C corporations. (No details provided.) Numerous special exclusions and deductions would be repealed or restricted, but no details provided. The current-law domestic production (“section 199”) deduction would “no longer be necessary.” R&D and Low-Income Housing Credits would be preserved.
- Changes to International Taxation are Ambiguous: The frameworkcalls for transitioning to a “territorial” tax system under which U.S.-based multinationals would not pay tax on foreign profits. The rationale is that U.S. multinationals are currently at a competitive disadvantage under the current “worldwide” system, although the current system allows American corporations with foreign subsidiaries to defer paying taxes on income earned abroad until that income is repatriated. The tax framework would effectively repatriate foreign earnings held offshore and impose a one-time tax. Critics of moving to a purely territorial approach argue it will encourage further off-shoring of U.S. operations and jobs, although the framework says this would be avoided by taxing foreign profits of U.S. corporations “at a reduced rate and on a global basis”–creating ambiguity about what the framework is actually proposing for international taxation.
- Cost of the Tax Cuts, the Byrd Rule, and 10-year Expiration of Tax Cuts: A preliminary analysis by the nonpartisan Tax Policy Center puts the cost of the tax cuts at $2.4 trillion over the first 10 years, and $3.2 trillion over the second decade. Note that the Senate Budget Resolution allows only a $1.5 trillion cost in the first decade; and the Senate’s Byrd Rule does not permit any deficit increase in the second decade. The Byrd Rule restriction will effectively require that any tax cuts not fully paid for, will have to expire at the end of 10 years.
- Increasing the Debt: The Committee for a Responsible Federal Budget estimates the tax plan would increase Debt Held by the Public to more than 100% of GDP by 2027. As for arguments that tax cuts will pay for themselves, CRFB points out that “past tax cuts in 1981 and the early 2000s have led to widening budget deficits and lower revenue.” However, the Administration is split on deficit impact: Treasury Secretary Mnuchin continues to claim the tax cuts will pay for themselves, while OMB Director Mulvaney — a self-described fiscal hawk — acknowledges the debt will increase but asserts it is justified to secure the tax cuts.Sept 27, 2017: Trump Administration, House and Senate GOP released a “Unified Framework for Fixing our Broken Tax Code.”
- Sept 13, 2017: Tax Policy Center study estimates that elimination of all corporate tax breaks would raise about $1.4 trillion in revenue over 10 years, enough to pay for cutting the corporate rate to 26 percent.
- August 1, 2017: Senate Democrats’ letter on Tax Reform urging Republicans to work with Democrats on tax reform and laying out three prerequisites: (1) tax reform should not increase middle class taxes or cut taxes for the top one percent; (2) tax reform should be accomplished with open debate and amendments instead of the fast-track Reconciliation process; and (3) tax reform should provide a revenue base that funds critical programs like Medicare, Medicaid, Social Security, and public investments.
- July 27, 2017: House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Kevin Brady (R-TX) issued a joint statement on tax reform that set aside the controversial Border Adjustment Tax proposed last year by the House GOP, and commits to developing a plan to lower rates for individuals and businesses, increases capital expensing, and incentivizes repatriation of corporate profits.
- April 26, 2017: White House one-pager: 2017 Tax Reform for Economic Growth and American Jobs The Administration released on April 26, 2017 a one-page skeletal outline of “2017 Tax Reform for Economic Growth and American Jobs.” The outline claims “the biggest individual and business tax cut in American history,” but does not include any revenue estimates to back-up the claim, nor does it indicate whether the several-trillion-dollar cost would be added to the nation’s public debt, or whether the bill would be paid for by offsetting revenue increases. If the several trillion dollar cost is to be deficit-financed, it does not explain how it squares with the impending House GOP budget plan aiming to balance the budget in 10 years. Individual tax reforms in the Trump outline would: reduce the top rate from 39.6% to 35%, and repeal the 3.8% Net Investment Income Tax, the estate & gift tax, and the Alternative Minimum Tax — all benefiting upper income taxpayers. Provisions with broader impact would double the standard deduction and provide unspecified tax relief for families with child and dependent care expenses. Business tax reform goals in the outline aim to reduce the corporate rate from 35% to 15%; and shift to a “territorial tax system” where only domestic profits would be taxed while profits from offshore would be tax-free, unlike the current system where taxes on off-shore profits are deferred, but taxed when brought back to the U.S.. The outline proposes to tax “trillions of dollars held overseas” but offers no details and makes no mention of using repatriation tax revenues for infrastructure--a trial balloon floated earlier in the year. Reduction of the corporate rate to 15% has been estimated by Tax Policy Center to cost $2.4 trillion in the first 10 years and $3.5 trillion in the second 10 years (violating the Senate’s Byrd Rule).
- Feb. 21, 2017: Letter from 16 companies to congressional leaders supporting comprehensive tax reform that lowers rates, allows immediate expensing, and incorporates a “more competitive territorial approach to taxing businesses” in which U.S.-based multinational companies pay U.S. tax only on their domestic income.
- Jan. 16, 2017: In WSJ interview, Trump criticizes border adjustment tax plan as “too complicated”
- Dec. 28, 2016: TPC releases “Top ten tax policy issues to watch in 2017”
- Dec. 21, 2016: CRS releases report on U.S. International Corporate Taxation
- Oct. 18, 2016: TPC releases nonpartisan analysis of Trump Tax Proposals
- Sept. 16, 2016: TPC releases nonpartisan analysis of House GOP Tax Reform Plan
- Aug. 8, 2016: Candidate Trump Releases Tax Proposals. Highlights (as outlined in speeches on August 8, Sept. 13 and Sept. 15):
- Reduce the current number of brackets from 7 to 3, and dramatically streamline the process. We will work with House Republicans on this plan, using the same brackets they have proposed: 12, 25 and 33 percent. For many American workers, their tax rate will be zero.
- Under my plan, no American company will pay more than 15% of their business income in taxes.
- Eliminate the carried interest deduction and other special interest loopholes.
- Allow parents to fully deduct the average cost of childcare spending from their taxes.
- Bring back trillions of dollars from American businesses that is now parked overseas. Our plan will bring that cash home, applying a 10 percent tax.
- Eliminate the estate tax.
- June 24, 2016: House Republicans Release Tax Reform Plan. Highlights:
- Consolidate the system down to three tax brackets, and lower the top individual income tax rate to 33 percent.
- Simplify tax filing for families by creating a larger standard deduction and a larger child and dependent tax credit.
- Streamline education tax benefits.
- Eliminate the alternative minimum tax.
- Reward work by “improving” the EITC.
- Encourage charitable giving by increasing tax incentives.
- Reforming savings provisions.
- Repeal the estate tax.
- Cut taxes on small businesses by creating a separate, low tax rate of 25 percent.
- Cut taxes on savings and investment by allowing families and individuals to deduct 50 percent of the dividends, capital gains, and interest received from stocks and mutual funds.
- Provide a tax-free return on new investment by allowing full and immediate write-offs.
- Transform the corporate tax to a form of Border Adjustment Tax (BAT) called a “destination-based cash flow tax (DBCFT). The proposal would transform the corporate income tax into a consumption tax, under which goods and services destined for domestic consumption (including imports) are taxed, interest payments are no longer deductible, and goods and services destined for other countries (exports) are not taxed. One objective is to raise revenue by taxing imports and using the revenues to reduce corporate tax rates to 20%; another objective is to remove the incentive for corporate inversions (moving overseas) because taxation would be based on where goods and services are consumed, not where they are produced.
- Restructure the IRS around three major units: one for individuals and families, one for businesses of all sizes, and one that provides an independent “small claims court” approach to resolving routine disputes quickly.
- Creating an Office of Dispute Resolution. (Note: IRS already has a Taxpayer Advocate Service)
Tax Reform Plans:
Major Reports / Releases on Tax Reform