House Republicans' Blueprint for Tax Reform in 2017

Recently, House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady released a blueprint for comprehensive tax reform. While these proposed changes are not authored by either presidential nominee, they will likely be an integral part of any tax reform taking place in 2017, assuming the Republicans maintain House control. The blueprint is a step towards tax law simplicity and is pro-growth, leading some to believe the Senate might take action on similar legislation as well. Ways and Means Committee staff have indicated they want to work with stakeholders to formulate details in order to prepare a tax bill to be considered in 2017. A few of the tax law changes highlighted below deal with foreign earnings of U.S. companies and are aimed at providing the U.S. a better playing field on the international stage. All of these provisions were strongly touted at the Republican National Convention this week.

 

Blueprint Highlight

Details   

Corporate tax rate

20% statutory

Business interest expense deductions

Deduction only allowed against interest income; unused deduction may be carried forward  indefinitely

Corporate tax credits

All eliminated except Research & Development credit

Net operating losses

Carry-forward allowed indefinitely, limited to 90% of taxable income in year used; carry-back eliminated

Capital expenditures

100% expensing, including tangible and intangible property (but excluding land)

Taxation of foreign earnings

Territorial; 100% exemption for dividends from foreign subsidiaries

Mandatory repatriation tax rate

8.75% for cash and cash equivalents; 3.5% other

Pass-through entity tax rate

25% maximum tax rate on business income from partnerships, S corps, Schedule C entities and other pass-throughs

Alternative Minimum Tax

Eliminated for corporate and individual taxpayers

Estate tax

Eliminated

Individual tax rates

12%, 25%, 33%

Itemized Deductions

All eliminated except mortgage interest and charitable contributions

Capital gain tax rates

50% deduction, leading to tax rates of 6%, 12.5%, 16.5%

 

The plan also calls for restructuring of the Internal Revenue Service into three separate units. The first focusing on individuals and families, the second focusing on businesses and the third being a small claims court focused on resolving common tax disputes to cut back on costly legal and administrative actions.   

If fully adopted, this blueprint would be the most meaningful tax reform measure since 1986. It is intended to stimulate job growth here in the U.S. and stem the flow of U.S. jobs overseas. A major assumption is a significant boost to economic growth due to these tax policies. Otherwise, the deficit and national debt will be adversely affected.

The plan for new tax legislation, along with the potential restructuring of the IRS will continue to evolve over the coming months, partially hinging on the outcome of the fall elections. The HORNE Tax Legislation and Policy Group will continue to monitor and report on these evolving tax issues, and we will assist clients with proactive planning as events warrant.

 

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Brielle.Pepper.jpgAbout the Co-Author:

Brielle Pepper, CPA, is a senior associate at HORNE LLP.  Her primary focus is in the area of tax compliance for public and middle market clients. Brielle joined Horne in 2013.

Topics: Tax Reform

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