President Trump and Congressional Republicans today released an outline of their long-awaited tax reform proposal. Details, including how much of the plan will be “paid for” and by which methods, have not been released and will likely not be until a budget is passed and the House Ways & Means Committee, Senate Finance Committee and White House reach agreement.
For those wondering if repeal of LIFO is included in the proposal, the answer is we don’t know. Those details will be hashed out within the committee, but plan on organizations like HARDI continuing strong lobbying efforts on behalf of LIFO.
We do know that many of the components included in this initial volley align with priorities that HARDI has advocated on for some time, including repeal of the estate tax, elimination of the Alternative Minimum Tax (AMT), code simplification and broad capital expensing.
Among the highlights:
– Creates a new business tax rate and structure for pass-through entities of 25%. This tax would be applied to business income and not to salary drawn from that business.
– Lowers the corporate rate to 20% and may consider methods to reduce double taxation of corporate earnings.
– The current seven individual tax brackets are merged into three (12%, 25% and 35%), with the potential for an additional top rate for high earners.
– Allows for expensing of capital investments for at least five years (this time limitation is being done to reduce the “score” of the package). This section is where the HEAT Act could be folded in.
– Eliminates the Estate Tax and Alternative Minimum Tax.
– Doubles the Standard Deduction.
– Caps the use of interest deductibility for C-Corps with the “potential” for some limitations for pass-through entities.
– Eliminates most itemized deductions (including the state/local income tax deduction), but does preserve the mortgage interest and charitable contribution deductions. This could foreshadow tough-sledding for items such as the renewable tax credit.
– Allows companies that have accumulated processes overseas to return those profits to the United States by imposing a one-time, low tax rate.
HARDI will continue to update members on this important issue.