“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, pass-through, and individual rate reductions, 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.
Major Reports / Releases on Tax Reform
Tax Reform Timeline
- April 26, 2017: 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.
- 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)