House Republicans Release Tax Plan Framework

By:
Chris Gaetano
Published Date:
Sep 28, 2017
Congress

House Republicans, through the Ways and Means Committee, released the general framework under which they plan to craft more specific changes to tax policy. Because the nine-page document is meant to provide more of a template for tax-writing committees to work from, it does not contain many technical details, but broadly describes goals and objectives in many different areas. 

In terms of individual taxation, the GOP proposal doubles the standard deduction to $24,000 for joint filers and $12,000 for single filers. At the same time, the plan would get rid of the additional standard deduction and the personal exemption for taxpayers and their spouse. There also would be no personal exemptions for dependents, though the Child Tax Credit would be increased, though the framework does not say by how much. The framework also increases the income levels at which the Child Tax Credit begins to phase out, making it available to more middle-income families and eliminate the marriage penalty in the existing credit. It also includes a non-refundable $500 credit for non-child dependents. 

It would also collapse the current seven-bracket system into a three-tiered structure of 12 percent, 25 percent and 35 percent. However, there was no information on which incomes would apply to which brackets. There may also be another bracket for the highest-earning taxpayers, but there were no specifics as to what the rate would be. Further, the AMT would be repealed, as would most itemized deductions save those for home mortgage interest and charitable contributions. At the same time, it also aims to retain tax benefits that encourage work, higher education and retirement security, with the committees encouraged to simplify these benefits to improve efficiency and effectiveness. 

It would also repeal the estate tax and the generation-skipping transfer tax. 

The framework also contains a number of business tax provisions. It calls to limit the maximum tax rate applied to business income of small and family-owned businesses to 25 percent, provided they are sole proprietorships, partnerships or S corporations. It also proposes reducing the corporate tax rate to 20 percent (the GAO noted in a 2016 report that the effective corporate tax rate tends to be lower than the statutory 35 percent rate for top-earning corporations).  It would also eliminate the corporate AMT and "consider methods to reduce the double taxation of corporate earnings." 

The proposal would also see businesses being able to immediately expense the cost of new investments in depreciable assets (with the exception of structures made after Sept. 27, 2017), versus through depreciation deductions over time as is currently done. This change, which the framework called "unprecedented," would be for at least five years. 

The net interest expense incurred by C corporations would also be partially limited, and the domestic production deduction would be dropped because, according to the document, it would no longer be necessary given the tax cuts that all businesses would get. 

Further, the framework explicitly preserves business tax credits in R&D and low-income housing. While the framework instructs tax committees to consider repealing other business credits, it notes that they might opt to retain some, though does not say which ones. The framework also says that special tax regimes that government specific industries and sectors would be updated to account for current economic realities. 

Finally, the framework proposes a 100 percent exemption for dividends from foreign subsidiaries in which the U.S. parent owns at least a 10 percent stake. It would also treat foreign earnings that have accumulated overseas under the old system as repatriated, with those held in illiquid assets being subject to a lower tax rate than those held in cash or cash equivalents. Payment of tax liability would be spread out over several years. 

Finally, foreign profits of U.S. multinational corporations would be taxed at a reduced rate on a global basis, which the framework document says would discourage the use of overseas tax havens. It also instructs tax committees to write rules that level the playing field between U.S.-headquartered parent companies and foreign-headquartered parent companies. 

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