“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 Plans:
Tax Reform: Overview
- Tax reform is more likely in the 115th Congress (2017-18) than in previous Congresses for three reasons: (1) one-party control of the White House and Congress; (2) the ability of the GOP to circumvent potential filibusters by using the filibuster-proof budget reconciliation process (see our description of the budget reconciliation process in the budget process overview page and a narrative description in the budget process nutshell); and (3) similar statements last year by then-candidate Trump and House Republicans on tax cuts and tax reform.
- Tax reform could include: corporate rate reductions, similar reductions for pass-through entities, estate tax repeal, elimination of the “carried interest” deduction, and some form of “Border Adjustment Tax” or international tax reform.
- Note on Timing of Tax Reform: If Budget Reconciliation is used for tax reform to avoid a filibuster, legislative action would be delayed until after the Affordable Care Act Reconciliation legislation is completed.
- Paying for Tax Reform and the Byrd Rule: Using the filibuster-proof Budget Reconciliation procedure for tax reform would require compliance with the Senate’s Byrd Rule, which bars out-year deficit increases, so that tax rate cuts would have to expire after 10 years or the rate cuts would have to be fully paid for with repeal of existing tax deductions and credits (aka “tax expenditures“) requiring very tough political trade-offs. Speaker Ryan has indicated he favors paying for the rate cuts.
- Aside from the Byrd Rule prohibition, passing large tax cuts without paying for them would lead to higher debt even after factoring in economic growth– and the nation is already on an unsustainable trajectory of long-term debt growth. (See the discussion of deficits and debt, where the nonpartisan Congressional Budget Office projects, “As deficits accumulate…debt held by the public rises from 77 percent of GDP ($15 trillion) at the end of 2017 to 89 percent of GDP ($25 trillion) by 2027. At that level, debt held by the public would be the largest since 1947 and more than twice the average over the past five decades….Beyond the 10-year period, if current laws remained in place, the pressures that contributed to rising deficits…would accelerate and push debt up even more sharply…. Such high and rising debt would have serious negative consequences for the budget and the nation.)
Tax Reform Timeline
- 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.
- 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)
Major Reports / Releases on Tax Reform