“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
Week of Nov. 13:
- HOUSE: Rules Comm. and Floor action; House passage of tax bill likely.
- SENATE: Finance Committee marking-up Senate version, with consideration of amendments to begin Nov. 14.
- On Monday, 11/13, the Penn Wharton Budget Model, an analysis issued through the Wharton School of the University of Pennsylvania, found the House tax bill would increase deficits by as much as $1.7 trillion over 10 years, even after accounting for additional economic growth that tax cuts could spur. Details:
- “After including the tax bill’s effects on economic growth, TCJA is projected to reduce revenues between $1.5 trillion and $1.7 trillion. Debt rises by about $2.0 trillion over the same period. Looking beyond the 10-year budget window, by 2040, revenue falls between $3.6 trillion and $4.4 trillion while debt increases by $6.4 to $6.9 trillion.
“In 2027, GDP is between 0.4% and 0.9% higher than with no tax changes. By 2040, the difference between GDP under the House tax bill and current policy is between 0.0% and 0.8%, due to larger debt.”
Last Week’s Action: On Thursday, Nov. 9, House Ways & Means Committee approved a modified version of their tax bill, while Senate Finance Chairman Hatch unveiled a Senate version with significant differences from the House version.
House Ways & Means Committee Republicans approved their tax bill on a party-line 24-16 vote. Prior to passage, committee Republicans approved a package of last minute changes to the bill to address concerns of small businesses and reduce the net cost of the bill to the $1.5 trillion limit in the Budget Resolution.
The modifications include provisions to:
- Lower the pass-through tax rate for small businesses to a low 9 percent rate (phased in over 5 years) for pass-through entities on their first $75,000 in net business taxable income (after pressure from small business advocates);
- Increase the repatriation tax on corporate profits held abroad to 14 percent for cash and 7 percent for illiquid assets;
- Restore the adoption tax credit;
- Increase the new tax on private university endowments;
- Require business research expenses to be amortized over 5 years; and
- Allow all non-profits, not just churches, to engage in political activity.
Ways & Means Committee did not add repeal of the Obamacare individual mandate to the House tax bill as the Administration had requested (and continues to push for).
While the Ways & Means Committee was completing action on its version of tax bill, Senate Finance Committee Chairman Hatch unveiled the Senate GOP version:
- Senate Finance Committee Chairman’s Mark [released Nov. 9]
- JCT Revenue Estimates of Chairman’s Mark [released Nov. 9]
Key differences from the Ways & Means bill:
- Delays the corporate rate cut one year to 2019 (although Administration has been adamant about lowering the rate in 2018);
- Lowers the top individual rate to 38.5% (fueling assertions that the bill favors the rich);
- Seven tax brackets: 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent and 38.5 percent;
- Pass-Throughs: while the House bill would tax pass-throughs at a general rate of 25 percent, with an additional low rate for business owners making less than $75,000, the Senate bill would reduce the rate for pass-through businesses by allowing them a 17.4 percent deduction, equivalent to a top rate of about 32 percent;
- While the House bill would repeal most of the state and local tax deduction but retain a limited deduction for property taxes, the Senate bill would scrap the entire deduction;
- Like the House, moves to a “territorial” tax system generally aimed at shielding offshore corporate income from U.S. taxation, but unlike the House bill, does not impose an excise tax on a portion of foreign subsidiaries’ profits (the House excise tax is aimed at discouraging off-shoring of profits);
- Increases the child tax credit from $1,000 to $1,650 and makes it available for families making as much as $1 million, and creates a new $500 credit for other dependents (compared to $300 in the House bill);
- Retains deductions for student loan interest and medical expenses;
- Instead of repealing the estate tax, doubles the exemption to $22 million for a married couple; and
- Maintains mortgage interest deductibility up to the current $1 million cap (after protests from the real estate industry).
TAX CUTS REDUCE CHANCES OF INFRASTRUCTURE INVESTMENT:
- By raising the public debt $1.5 trillion to finance corporate and individual rate reductions, enactment of the tax bill significantly lessens the chances that any significant public investment will be made in infrastructure.
- In addition, both tax bills cut back on tax preferences that could have incentivized infrastructure investment.
- A $1.5 trillion public investment in infrastructure would be a more direct and certain way to create domestic jobs, than either of the proposed tax bills.
OUTLOOK FOR ENACTMENT:
- Slim margins: As they are not seeking any Democratic support, the House GOP, with their 239-194 majority, can afford to lose only 22 votes. The Senate GOP, with their slim 52-48 majority, can afford to lose only 2 votes, and the uncertain health of Sen. Thad Cochran could place his vote at risk. In addition, Senators Flake and Corker have raised concerns about the $1.5 trillion debt increase to finance the tax cuts, and Sen. McCain has raised similar concerns in the past. If repeal of the ACA individual mandate is added to the tax bill, the support of Senators Collins and Murkowski could be in question.
- Senate’s Byrd Rule: The bill could run into procedural trouble in the Senate where the Byrd rule prohibits any revenue losses beyond the 10-year budget window–the effect of which is to require that tax cuts expire after 10 years unless fully paid for by that time.
- Push-back from Supporters of Current Deductions/Credits: The bill could run into political trouble in both chambers because it repeals or caps a multitude of popular individual and business deductions and credits to pay for the reduction in tax rates. Beneficiaries of the current tax preferences will have to decide whether tax rate reductions are worth the significant losses of current deductions and credits. See the House and Senate JCT revenue estimates for lists of the many deductions and credits slated for elimination or reduction in order to raise revenues to offset tax cuts.
- Skewed towards wealthy: Democrats will emphasize that the bill is skewed towards wealthy Americans. The Tax Policy Center estimates that by 2027, nearly three-quarters of the tax cuts in the House bill would go to the top quintile of taxpayers, nearly half would go to the wealthiest 1 percent of taxpayers, and one-quarter would go to the wealthiest one-tenth of one percent.
- Resolving the significant policy differences between the House and Senate tax bills, while staying within the $1.5 trillion limit for the first 10 years and complying with the Byrd Rule prohibition on outyear deficits will be technically and politically complex and challenging.
- Bottom Line: For a tax bill to pass, House and Senate GOP will have to resolve their significant policy differences and agree on a slimmed-down tax bill that has no deficit impact after 10 years, keeps popular individual and business tax deductions in place, addresses the public debt concerns of fiscal conservatives, and addresses the concerns of the small business community. That being said, chances of Congress enacting a slimmed-down bill have improved, with the tentative decision to keep Obamacare repeal provisions out of the tax bill.
Nov. 2, 2017: House Ways & Means Committee unveiled the Chairman’s Mark of the “Tax Cuts and Jobs Act” (HR 1)
- CLICK HERE for the JCT description of the Chairman’s Mark [released Nov. 6]
- CLICK HERE for the JCT distributional analysis (by income group) [released Nov. 3]
- CLICK HERE to read the full legislative text of the Tax Cuts and Jobs Act.
- CLICK HERE to read the section-by-section summary of the Tax Cuts and Jobs Act.
- CLICK HERE for JCT revenue estimates (Chairman’s Substitute Amendment to be considered at Ways & Means Committee on Nov. 6)
Outlook: Assuming no Democratic support, House GOP, with their 239-194 majority, can afford to lose only 22 votes; Senate GOP, with their slim 52-48 majority, can afford to lose only 2 votes (with the Vice president able to break a 50-50 tie.]
- Democrats will oppose the bill because it is heavily skewed towards tax cuts for high-income taxpayers and there is little evidence that the proposed business or individual tax cuts will significantly increase economic growth or create jobs.
- The bill could run into substantial procedural trouble in the Senate where the Byrd rule prohibits any revenue losses beyond the 10-year budget window, the effect of which is to require that tax cuts expire after 10 years unless fully paid for by that time.
- The bill could run into substantial political trouble in both chambers because it repeals or caps a multitude of popular individual and business deductions and credits (see below) to pay for the reduction in tax rates. Each economic sector will have to decide whether the rate reductions are worth the significant losses of current deductions and credits.
- Impact of the bill by income group (estimated prior to the Nov. 9 amendment): By 2023, about 38 million households earning between $20,000 and $40,000 could end up paying higher taxesunder the plan, compared to current law, according to testimony by the nonpartisan Joint Committee on Taxation as reported by CQ. The Tax Policy Center estimates that by 2027, nearly three-quarters of the tax cuts would go to the top quintile of taxpayers, nearly half would go to the wealthiest 1 percent of taxpayers, and one-quarter would go to the wealthiest one-tenth of one percent.
- Outlook: For a tax bill to pass, House and Senate GOP will have to agree on a slimmed-down tax bill with cuts that end after 10 years, keeps more popular individual and business tax deductions in place, addresses the public debt concerns of fiscal conservatives, and addresses the concerns of the small business community. Chances of a slimmed-down bill passing have improved to 50-50, with the decision to keep Obamacare repeal provisions out of the tax bill.
Summary of Key provisions follow [all revenue estimates cover 10 years, Fiscal Years 2018-27; “cost” refers to revenue losses to the U.S. Treasury]:
New Rate Structure: Under the structure, above the standard deduction of $24,000 for joint filers, there would be four tax rates:
- 12% (on the first $45,000 of taxable income for individuals; $90,000 for married couples filing jointly)
- 25% (starts at $45,000 for individuals; $90,000 for married couples)
- 35% (starts at $200,000 for individuals; $260,000 for married couples)
- 39.6% (starts at $500,000 for individuals; $1 million for married couples)
- [Cost of the restructured brackets: $1.1 trillion]
TAX CUTS BENEFITING HIGH-INCOME HOUSEHOLDS:
- Corporate rate reduction to 20%, the new 25% pass-through rate, and elimination of the corporate AMT would mostly benefit high-income households. (Cost: nearly $2 trillion – see business tax cuts below for breakout.)
- Narrows the 39.6% bracket: would kick in at $500,000 for individuals (up from $426,700) and $1 million for joint filers (up from $470,000). [No details on cost.]
- Repeals the Alternative Minimum Tax, which was designed to ensure that wealthy Americans cannot avoid paying a fair share of taxes [Cost: $695 billion]
- Repeals Estate Tax (which currently impacts only family estates worth more than $11.2 million) [Cost: $172 billion.]
- Background: The estate tax (dubbed by opponents as the “death tax”) is awash in misinformation.
- 99.8 percent of estates owe no tax according to the nonpartisan JCT.
- Only 80 small farms or businesses face estate tax according to the nonpartisan TPC.
- Only 0.4% of farm estates owe estate tax according to the USDA.
- The largest estates consist mostly of capital gains that have never been taxed.
- U.S. estates are taxed less than most other market economies according to the OECD.
- Repealing the estate tax would increase the public debt and slow the economy.
- Repealing the estate tax would negatively impact our democracy by further concentrating wealth in fewer families.
TAX CUTS BENEFITING LOW- AND MIDDLE-INCOME HOUSEHOLDS:
- Standard Deduction Increased: from $6350 to $12,000 (individuals) and $24,000 (joint filers), however, personal exemptions are repealed. [Raising standard deduction cuts taxes by $921 billion, but repealing personal exemption raises taxes by $1.6 trillion over 10 years.]
- Expands the Child Tax Credit from $1000 per child to $1600 (but refundable only up to $1000).
- Adds a new $300 “family credit” for non-child dependents but only for 5 years. [Cost: $431 billion]
- Increase Phaseout Threshold of Child Credit. [Cost: $209 billion]
REVENUE RAISERS TO PAY FOR INDIVIDUAL TAX CUTS
- In general, most itemized deductions are repealed except mortgage interest, investment interest, charitable contributions, property taxes. [Tax Benefits Lost: $1.26 trillion].
- Repeals deductions for interest on education loans, tuition, college expenses and consolidates/limits several higher education credits. [Tax Benefits Lost: $64 billion]
- Limits capital gains tax exclusion on sales of primary residence to once every 5 years. [Tax Benefits Lost: $22 billion]
- Eliminates deduction and exclusion for Moving Expenses. [Tax Benefits Lost: $16 billion]
- Eliminates deductions for Alimony Payments. [Tax Benefits Lost: $8 billion]
- Eliminates exclusion for Dependent Care for children and disabled adults. [Tax Benefits Lost: $6 billion]
- Eliminates credit for Adoption Assistance. [Tax Benefits Lost: $4 billion]
- Eliminates exclusion for Employee Achievement Awards [Tax Benefits Lost: $4 billion]
- Eliminates deduction for Teacher Expenses [Tax Benefit Lost: $2 billion]
- Caps the Mortgage Interest Deduction for primary residence at $500,000 loans; and eliminates deduction for second homes.
- Eliminates deduction for interest on home equity loans.
- Eliminates deduction for State/Local Income & Sales Taxes, and Caps Property Tax Deductions at $10,000/yr. (although pass-through businesses would still be allowed to deduct their state and local taxes as a business expense).
- Eliminates deductions for Medical Expenses.
- Eliminates deductions for Casualty Losses (fire, flood, burglary).
- An amendment adopted during Committee consideration would restrict use of the “carried interest” provision that allows investment fund managers to pay tax at the lower capital gains rate; fund managers would be required to hold their assets for three years.
BUSINESS TAX CUTS:
- Corporate Income Tax Rate Cut from 35% to 20% except for personal services firms which would pay 25%. [Cost: $1.46 trillion]
- Establish a new top rate of 25% rate for a portion of pass-through business profits. (Most U.S. businesses are set up as “pass-throughs,” not corporations–for example, partnerships, LLCs, and subchapter S–where profits are “passed-through” to the business owner’s individual tax returns). [Cost: $448 billion over 10 years]
- NFIB opposed: However, the lower rate only benefits higher-income pass-throughs with income in the 35% or 39.6% brackets. The National Federation of Independent Businesses has said they can’t support the House GOP bill as is, because it “leaves too many small businesses behind.”
- Anti-abuse rules: to prevent people from converting wage income into profits to get the lower 25% rate, the bill would limit businesses to one of two options — claiming up to 30 percent of income as pass-through; or a capital-based option; personal service industry professionals, such as attorneys, doctors, engineers and architects, are only eligible for the capital option.
- Repeal Corporate Alternative Minimum Tax [Cost: $40 billion]
- Full and Immediate Expensing of capital expenditures during the next 5 years. [Cost: $25 billion]
- Sec. 179 expensing limits on business equipment purchases expanded from $500,000 to $5 million. [Cost: $11 billion]
REVENUE RAISERS TO PAY FOR BUSINESS TAX CUTS:
- Cap the deduction corporations take for interest expenses with exemptions for real estate developers and some others [Tax Benefits Lost: $172 billion]
- Caps Net Operating Loss deductions (NOLs) at 90 percent of taxable income. [Tax Benefits Lost: $156 billion]
- Repeals sec. 199 domestic manufacturing deduction. [Tax Benefits Lost: $95 billion]
- Terminates private activity bonds and advance refunding bonds. [Tax Benefits Lost: $56 billion]
- Retains the Low-Income Housing Tax Credit, but repeal of the tax exemption for private activity bonds–including multifamily tax-exempt bonds–finances more than 40 percent of all low-income housing tax credit-financed affordable homes annually.
- Repeals credit for clinical testing for drugs to treat rare diseases. [Tax Benefits Lost: $54 billion]
- Repeals various tax preferences for the insurance industry. [Tax Benefits Lost: $40 billion]
- Repeal “Like-kind” exchanges except for real property [Tax Benefits Lost: $30 billion]
- Repeals business entertainment deductions. [Tax Benefits Lost: $21 billion.]
- Nonqualified deferred compensation. [Tax Benefits Lost: $16 billion]
- Repeals deduction for FDIC premiums paid by large financial institutions. [Tax Benefits Lost:$14 billion]
- Modify credit for electricity produced from renewable resources. [Tax Benefits Lost: $12 billion]
- Repeals deduction for employee fringe benefits, such as transit and parking. [Tax Benefits Lost: $11 billion]
- Repeals rehabilitation credit. [Tax Benefits Lost: $9 billion]
- Modification of limitation on excessive employee remuneration. [Tax Benefits Lost: $9 billion]
- Repeals Work Opportunity Tax Credit aimed at encouraging employers to help people transition from welfare to work. [Tax Benefits Lost: $3.6 billion]
- Terminates New Markets Tax Credit for investing in community development projects in low-income areas. [Tax Benefits Lost: $1.7 billion.]
- Repeal deduction for employer-provided gyms. [Tax Benefits Lost: $2 billion.]
INTERNATIONAL TAX REFORMS:
Territorial Tax Regime: Move to “territorial” tax system, similar to other nations, with taxes paid by U.S. companies on profits earned domestically; offshore profits would be subject to taxes imposed by countries where the profits are earned; however, to discourage shifting production overseas to lower-tax havens, the bill imposes a 10% tax on a portion of foreign subsidiaries’ profits above a threshold. [Cost: $205 billion]
Deemed Repatriation: US-based multinational corporations would pay a 12 percent tax on existing profits held offshore in cash (5 percent for non-cash assets), with up to 8 years to pay the tax. Intended to raise revenue and to encourage companies to repatriate off-shore profits by ending the current deferral of taxation on off-shore profits. [New Tax: $223 billion]
- New 20% Excise Tax on Payments to Foreign subsidiaries. [New Tax: $155 billion]
- Current year inclusion by U.S. shareholders with foreign high returns. [New Tax: Raises $77 billion]
- Limit deduction of interest by domestic corporations which are members of an international financial reporting group. [Tax Benefits Lost: $34 billion]
Makes Permanent the “Look Through Rule” which enables a U.S. parent to avoid triggering tax on passive income distributed between foreign subsidiaries. [Cost: $12 billion]
- Background: 2016 nonpartisan CRS report on U.S. International Corporate Taxation
CHURCHES, UNIVERSITIES, AND NON-PROFITS:
- Excise tax based on investment income of private colleges and universities [New Tax: $3 billion]
- Imposes a new 20% excise tax on “excess executive compensation” at tax-exempt organizations. [New Tax: $3.6 billion]
- Repeal the “Johnson Amendment” and allow political campaign activity by churches while maintaining tax-exempt status. [Cost: $2.1 billion]
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 framework calls 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.
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
- 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:
- 2017 GOP Unified Framework for Fixing our Broken Tax Code
- 2016 House GOP Tax Plan
- TPC analysis of House Plan
- 2016 Trump Tax Plan: Highlights (as outlined in speeches on August 8, Sept. 13 and Sept. 15)
- TPC analysis of Trump Tax Plan
- CRS: An Overview of Recent Tax Reform Proposals
- 2015: Senate Finance Committee bipartisan working groups on tax reform
- The Business Income Bipartisan Tax Working Group Report
- The Community Development & Infrastructure Bipartisan Tax Working Group Report
- The Individual Tax Bipartisan Tax Working Group Report
- The International Tax Bipartisan Tax Working Group Report
- The Savings & Investment Bipartisan Tax Working Group Report
- 2014: JCT: Technical Explanation of the Tax Reform Act of 2014
Major Reports / Releases on Tax Reform
- 2017: CBO Report on Tax Revenues and Corporate Inversions
- 2017: Border Adjusted Consumption Taxes
- 2017: An Overview of Recent Tax Reform Proposals
- TPC 2016 Analysis of Trump Tax Plan
- TPC 2016 Analysis of House GOP Tax Plan
- 2017 Brookings Analysis of the Border Adjustment Tax
- 2016 CRS report on U.S. International Corporate Taxation
- JCT: Tax Provisions Expiring in 2017
- Tax Reform Proposals in the 114th Congres (2015-16)
- 2016 report on Corporate Expatriation, Inversions, and Mergers
- Candidate Trump’s Tax Proposals in his August 8, 2016 Address
- House GOP Tax Reform Plan released on June 24, 2016
- 2015 CRS report on Reform of U.S. International Taxation — Alternatives
- 2015 CRS report on Corporate Tax Base Erosion and Profit Shifting (BEPS) — An Examination of the Data
- 2015 CRS report on Tax Havens International Tax Avoidance and Evasion
- 2014 CRS report on The Corporate Income Tax System — Overview and Options for Reform
- 2014 CRS report on International Corporate Tax Rate Comparisons and Policy Implications
- 2013 GAO report finding that profitable corporations paid an effective rate of only 12.6% in 2010 due to credits, exemptions, and offshore tax havens.
- 2012 CRS report: Taxes and the Economy – An Economic Analysis of the Top Tax Rates Since 1945