On April 26, 2017, the Trump Administration released its long-awaited tax plan. What finally emerged was a one-page document of less than 300 words with less detail than had been included in Trump’s campaign tax proposals. Because of its brevity, it should not be assumed that something that has been omitted has been dropped from his proposals. Discussions with Administration officials indicate that several omitted items are still part of the plan. The plan represents significant changes from Trump’s campaign proposals, many of which move closer to the House tax reform blueprint. Wolters Kluwer Tax & Accounting highlights some of the significant features of President Trump’s latest tax plan.
- Proposed individual tax brackets of 10%, 25%, and 35% without stating at what income level these would kick in. This is a change from the 12%, 25% and 33% brackets from the Trump campaign and the House blueprint.
- Doubling the standard deduction. This is a reduction from the campaign proposals and a move to match the House proposal.
- Tax relief for families with child and dependent care expenses. However, it is not clear if details from campaign proposals are carried forward.
- Preserve itemized deductions only for mortgage interest and charitable contributions. This is a move away from the campaign proposal for a cap on itemized deductions and a move toward the House proposal.
- Repeal the AMT and the estate tax. This is a carryover from the campaign and matches the House proposal. Trump may be dropping his campaign proposal to repeal the gift tax.
- Repeal the 3.8% tax on net investment income from the Affordable Care Act. This is the first time that Trump has brought the ACA taxes into the tax reform discussion. Congress continues to treat ACA taxes separately as part of health care repeal and reform.
- Top corporate and business tax rate of 15%. This is a carryover from the campaign and lower rates than those proposed by the House: 20% top corporate rate and 25% top business income rate.
- Move to a territorial tax system. This was not in the Trump campaign proposals and another move toward the House proposal.
- One-time tax on unrepatriated earnings held overseas by U.S. corporations. The campaign had suggested a rate of 10%, while the House had proposed two lower rates. Now the rate is unspecified.
- Trump campaign had proposed repeal of personal exemptions, retention of 20% top rate for capital gains and dividends, a dividend-like tax on pass-through entity distributions, ordinary income tax treatment for carried interests, preservation of the research credit, and immediate write-off of capital purchases with loss of interest deduction. These are not mentioned in the latest plan but may still be included in the Administration’s proposals.
- Trump’s tax plan did not include the House proposal for a border adjustment tax. Trump Administration discussions of possible tariffs or reciprocal taxes were not included in the Trump tax plan.
- The Trump tax plan seems to be making less of an effort to be revenue neutral than the House proposal, relying primarily on projected economic growth, the elimination of some tax breaks, and the one-time tax on unrepatriated earnings.
The Trump tax plan states that the Administration hopes to work with the House and Senate during May to come up with a common tax reform proposal. Furthermore, indications are that there is hope to release a revised plan by June and enact tax reform by the end of 2017.
For more information, please visit Wolters Kluwer Tax & Accounting’s tax briefing.