Tax Reform: What We Know and What's Next

Page 1

TAX REFORM: WHAT WE KNOW AND WHAT'S NEXT The Trump Administration has released its framework for reforming the country's current tax code. The nine-page document, a "Unified Framework for Fixing Our Broken Tax Code," was created with the leadership from the White House (including the Treasury Secretary and Director of the National Economic Council), the U.S. Senate, the U.S. House of Representatives, the House Ways and Means Committee (WMC) and the Senate Finance Committee (SFC) – the so-called "Big Six." With the release of this framework, which omitted a number of significant details, the tax reform process now moves to the committees of jurisdiction, specifically, the WMC and SFC, which will take the framework and craft its concepts into legislation. Although the framework includes new details added since the April concept document, many of the specifics – such as what, if any, other tax provisions will remain post-reform and how the legislation will be "paid for" – will remain unanswered and fluid until there is an actual bill introduced in Congress.

THE FRAMEWORK IN A NUTSHELL Still, the framework provides some initial metes and bounds to the tax reform process, including the below key highlights.  Reduces the corporate tax rates to 20 percent, which the framework notes is below the average 22.5 percent rate in the industrialized world  Consolidates personal tax brackets: Under current law, taxable income is subject to seven tax brackets. The framework recommends three: 12 percent, 25 percent and 35 percent  Doubles the standard deduction for individuals to $24,000 for married taxpayers filing jointly and to $12,000 for single filers  Addresses pass-through entities: Sets the maximum tax rate structure for small businesses conducted as sole proprietorships, i.e., pass through entities, to 25 percent, with measures to ensure that personal income is not re-characterized as corporate rates  To simplify the tax code, the framework "eliminates most itemized deductions," but would retain the mortgage interest and charitable giving deductions  Eliminates most other itemized deductions, including the deductions for state and local taxes, and specifically states that the Section 199 production deduction will no longer be necessary because of the substantial rate reduction  Allows immediate expensing of new investments (so-called "full expensing") for at least five years and partially limits interest deductibility to help offset the cost  Eliminates most business credits, though the framework explicitly preserves two credits it states "have proven to be effective in promoting policy goals important to the American economy," specifically the research and development (R&D) and low-income housing tax credits  Repeals the estate tax

Copyright © 2018 Holland & Knight LLP All Rights Reserved

1


Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.