Tax Reform Framework Released

September 27, 2017
The Big Six released their anticipated framework for tax reform today, largely confirming the details that have been leaking out throughout the week.  The most important details are as follows:
  1. Tax Rates
    1. Individual rates simplified to three brackets—12%, 25%, and 35%
      1. “Zero-percent” bracket expanded
      2. Lowest rate increased from 10% to 12%
      3. Highest rate decreased from 39.6% to 35%
      4. Possibility of adding fourth bracket for wealthiest taxpayers
    2. Top corporate rate reduced from 35% to 20%
    3. Passthrough income, apparently intended for small and family owned businesses, taxed at 25%
      1. Details left to be drafted in committee
      2. Interest deductibility by non-corporate taxpayers to be considered by committees
  2. Corporate Taxation
    1. Full expensing for capital expenditures made after today for at least five years (other than for structures)
    2. Partially limiting interest deductibility
    3. Eliminating AMT
    4. Many business tax incentives (e.g., domestic production deduction) eliminated, but R&D credit and low-income housing credit preserved
      1. Details will be left up to committees
      2. Special tax regimes will be revised to better reflect the economic reality of such industries and sectors
    5. Committees may consider methods to reduce the double taxation of corporate earnings
  3. International Taxation
    1. Shift from a worldwide system to a territorial system with 100% dividends received deduction (for 10% corporate shareholders)
    2. Deemed repatriation of “trapped cash”
      1. Two unspecified tax rates—one for reinvested assets and another for cash and cash equivalents
    3. Base erosion rules to protect the tax base
      1. The foreign profits of U.S. multinational corporations will be taxed at a reduced rate on a global basis
        1. Drafting will be left up to committees
  4. Individual Taxation*
    1. Standard deduction doubled, but personal exemptions repealed
    2. Charitable giving and mortgage interest deductions preserved
    3. Most other itemized deductions eliminated, including state and local tax deduction
    4. Individual AMT repealed
    5. Other tax benefits for higher education and retirement security to be retained, but simplified (possibly municipal bond preference and retirement resources), subject to committee input
  5. Estate tax and generation-skipping transfer tax eliminated
    1. Status of gift tax unclear
* Note—references to ACA taxes (e.g., the 3.8% tax on net investment income) were not referenced in the Framework.