Trump Admin Releases ‘Framework’ for Tax Reform
Lower corporate tax rate, three tax brackets.
Obamacare repeal. Tax reform. Obamacare repeal. Now back top tax reform! President Donald Trump’s administration and the GOP in Congress have released a framework for possible tax reform.
The framework somewhat mirrors what Trump released in April: slashed corporate tax rate and three tax brackets. The Republicans hope this plan will finally give them a victory after too many failures to repeal Obamacare.
The framework consists of nine pages, which insist that Trump wants to keep the tax code simple and allow people to keep more of their paycheck (then repeal the 16th amendment!). He also wants a code that will bring companies back to American soil.
This framework comes from the big Six: Treasury Secretary Steven Mnuchin, Economic Adviser Gary Cohn, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, House Speaker Paul Ryan, and House Ways and Means Chairman Kevin Brady.
Tax Relief for American Families
First off, the tax code will shrink from seven brackets to three: 12%, 25%, and 35%. However, congressional committees have an option to add a fourth bracket on the high earners. It also doesn’t define what income fits in those brackets.
The framework will double the standard deduction to $24,000 for a married couple and $12,000 for a single person. These changes mean those with less than those amounts will fall into the “zero tax bracket.”
Here’s what the plan says about the Child Tax Credit:
To further simplify tax filing and provide tax relief for middle-income families, the framework repeals the personal exemptions and significantly increases the Child Tax Credit. The first $1,000 of the credit will be refundable as under current law.
In addition, the framework will increase the income levels at which the Child Tax Credit begins to phase out. The modified limits will make the credit available to more middle-income families and eliminate the marriage penalty in the existing credit.
The framework also provides a non-refundable credit of $500 for non-child dependents to help defray the cost of caring for other dependents.
The framework includes repealing the alternative minimum tax since “it no longer serves its intended purpose and creates significant complexity.” Those involved decided to eliminate it instead of fix it. The estate tax essentially forces people “to do their taxes twice.” It also “repeals the death tax and the generation-skipping transfer tax.”
It looks like “most itemized deductions” will go away, but the framework “retains tax incentives for home mortgage interest and charitable contributions.”
Without going into detail, the document states that the the framework for tax reform “retains tax benefits that encourage work, higher education and retirement security.” It says that “committees are encouraged to simplify these benefits to improve efficiency and effectiveness.”
Then it mentions that “[T]ax reform will aim to maintain or raise retirement plan participation of workers and the resources available for retirement.” This made me perk up because yesterday I wrote about reports coming out that the government may change the 401(k) by taxing your contributions right away instead of on withdrawal. That statement above seems to contradict the report because taxing contributions could lead to people not putting enough into savings.
Corporations
Trump has said that he wanted to lower corporate tax rates as a way to bring jobs to America. The documents stated that the framework will limit “the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25%.” The writers hope that committees will take choose to “adopt measures to prevent recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”
The tax code right now taxes small businesses at the individual level.
They hope the tax rate for corporations will go down to 20% from 35%. Just like with individuals, the framework wants to “eliminate the corporate AMT.” It allows committees to “consider methods to reduce the double taxation of corporate earnings.”
Businesses will have the ability to immediately write off “the cost of new investments in depreciable assets other than structures” for at least five years. The framework will partially limit deductions “for net interest expense incurred by C corporations.”
All of these deductions have led to the writers to decide that “the current-law domestic production (“section 199”) deduction will no longer be necessary. Section 199 is “for businesses that perform domestic manufacturing and certain other production activities.” The framework claims that these domestic manufacturers will enjoy “the lowest marginal rates in almost 80 years” and “numerous other special exclusions and deductions will be repealed or restricted.”
The framework will preserve business credits in research and development and low-income housing. It explained that these two areas “have proven to be effective in promoting policy goals important in the American economy.”
But the framework will also allow committees “to retain some other business credits to the extent budgetary limitations allow.”
For specific industries, there are special tax regimes. The framework promises to “modernize these rules to ensure that the tax code better reflects economic reality and that such rules provide little opportunity for tax avoidance.”
Support?
Some Republicans have come out for the plan or said that the details have given them some hope. From The Daily Signal:
“Tax reform that follows the outline we heard today will deliver significant benefits for all Americans,” Adam Michel, a tax policy analyst at The Heritage Foundation, said in an email to The Daily Signal, adding:
The outlined tax reform will raise wages, increase job creation, and create untold additional opportunities. The plan goes a long way toward fixing our business tax system that makes it hard for businesses to invest in America.
President and CEO of the Job Creators Network Ortiz told The Daily Signal that “the plan shows promise” while David McIntosh, president of the Club for Growth, thinks “the plan will foster economic development.”
Even Sen. Ted Cruz (R-TX) liked what he’s seen so far:
.@tedcruz: "Some of the early details are encouraging. The principles that should govern tax reform are growth, fairness and simplicity." pic.twitter.com/40PlDv2OFJ
— FOX Business (@FoxBusiness) September 27, 2017
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Comments
The fun proposal is the elimination of deductions for state and local taxes. Watch the high-tax blue states scream.
I’ll support this – assuming that it isn’t hacked to death in committee – based only on it killing the estate tax.
As usual the LibDems have already said they are against these proposals. So within the past 2 days the LibDems have come out against tax relief for working families and in favor of disrespecting the National Anthem. Those positions will appeal to their (shrinking) base but not to average Americans. Should make the 2018 mid-terms interesting.
As we have said before here…Any thing Trump is for the dims ain’t.
Things the dims will want is another ind. bracket for the higher earners, too much of a cash cow for them.
and I don’t see corp going down 15%…see above. dims have to give away stuff in order to get the votes.
As a recent retiree…I have NOOOOOOO problem with it….Need more money now that I got a Sunday afternoon with nothing to do….lol
If I’m reading it correctly, the personal exemptions are zeroed out as well.
Under current law, the personal exemptions are worth $4,050 for 2017, and the standard deduction is $6,300 single, $12,700 married.
Under the proposal, the personal exemptions are zeroed out, while the standard deduction is increased to $12,000 single, $24,000 married.
So for a married couple filing jointly with two children is excludes the first $12,700 + 4 x $4,050 = $29,100 from taxation, and the first taxable dollars are taxed at 10%.
Under the proposal, this same couple would exclude $24,000 + 4 x $0 = $24,000 from taxation, and the first taxable dollars are taxed at 12%.
Increases to the child tax credit could mitigate this, but that particular item is not specified with any detail in the proposal as far as I can see.
So a hypothetical jointly filing couple with two children making $29,100 would pay no tax under current law, but $612 under the proposal.
I’m not sure I would call a $612 increase in tax due “relief”.
It’s not specified, but it’s obliquely mentioned that there would continue to be some type of “Child Tax Credit.”
The likelihood is that most of the “Refundable” tax credits will go away in favor of significantly expanded Non-Refundable credits (probably 150% to 200% of current).
Instead of transferring wealth through the tax code via “refundable” tax credits, if the system only gives “non-refundable” credits, a substantial amount of the plan will pay for itself.
A LOT of poor families are in for a very rude shock when they’re no longer getting that extra unearned income from being able to claim refundable credits for several children. My statistics are a couple of years out of date, but last time I researched it, about 10% of filers received a refund on circumstances where they had ZERO tax liability to begin with (a straight transfer of wealth via the government).
The proposed tax reform plan helps small businesses and investors. It does not provide significant help for middle income families. The lack of tax relief for the middle income worker is expected to be off-set by increased employment and and potentially higher wages. It will also not provide much relief for large businesses, as most of the deductions used to reduce their current tax burden are scheduled to be eliminated. The tax code will be simpler. But, not necessarily advantageous for middle class taxpayers, especially those with children.
Here’s a Constitutional Conservative view…
1. every American should pay to support their government
2. there should be no “corporate income tax”; it’s a damned lie
3. there should be no “income tax”…
4. no tax should be levied by the central government for the redistribution of wealth.
That’s it. Mic drop. Done. ‘Nuff said.
Here’s a better Constitutional Conservative view…
1. every American should pay to support their government;
2. every American’s tax liability should be solely based on the consumption that American imposes upon the system, and at a set percentage of what they consume AFTER they account for a threshold minimum allowance of the average person’s needs;
3. The tax should be highly visible, and easily calculable;
4. Goods and services should be taxed ONCE, and once only, when received by the final “end user.” Once those goods and services have been taxed once, it is improper to tax them again in any form, as they have already been paid for and the owner of the goods bears the risk of depletion of value, loss of value, or increase in value.
4.a. intended side effect: items that are treatable as “disposable” suddenly will become valuable, and such value will encourage individuals to conserve resources by reusing/recycling items in their daily lives.
In short: FAIRTAX!
While we’re at it, could we get a little relief from the friggin self-employment tax?
I, like many Boomers, am unlikely ever to afford to fully retire. So I work.
But when I do work, any profit I make is first hit with a 15+% self-employment tax, PLUS income taxed, PLUS a higher percentage of my Social Security benefit is also income taxed as well.
It is robbery.
Where is this…
https://assets.donaldjtrump.com/trump-tax-reform.pdf