President Trump Outlines Proposed Corporate and Individual Tax Reform

President Trump is proposing the largest tax cut in U.S. history, according to the White House. The 2017 Tax Reform for Economic Growth and American Jobs tax reform aims to incentivize investment growth, create jobs for companies and provide historic tax relief for middle-income families and small business owners. Dramatic tax cuts and tax code simplification, eliminating targeted tax breaks benefiting the wealthiest taxpayers and lowering the business tax rate from one of the highest in the world to one of the lowest are goals of the President’s proposal.

While the proposal outline is new, it follows pretty closely the individual and corporate tax reform proposals released in late 2016. Below is a high-level overview of points.

Individuals

Tax Rates

The President’s proposal would replace the current individual tax rates with a new, three-bracket range: 10, 25 and 35 percent, although the Administration has not yet developed the income brackets for the new rates.

Standard Deduction

The proposal calls for doubling standard deduction amounts, which would potentially simplify tax filing by cutting more than half those taxpayers who would otherwise benefit from itemizing deductions.

Deductions

Eliminating all individual tax deductions except for the mortgage interested deduction and charitable contribution deduction is proposed as part of the President’s plan. “Above-the-line” deductions may also be eliminated, although the administration would carve out deductions for retirement savings.

Estate Tax and AMT Elimination

The proposal calls for elimination of the federal estate tax and the Alternative Minimum Tax. The AMT has existed to ensure that individuals, corporates, estates and trusts with substantial income do not avoid tax liability. The President’s proposal calls AMT a complicated, unnecessary addition to the tax system.

Businesses

Corporate Tax Rate

While the current top corporate tax rate is 35%, an overall 15% corporate tax rate is being proposed. The new rate is projected to reduce revenues by $2 trillion over 10 years, though other projects call for economic growth to make up a significant part of the difference.

Small businesses would also see their tax rate reduced to 15% for pass-through income. S-corporations, partnerships and sole proprietors currently pay tax at the individual rates, with the highest rate at 39.6%.

Credits

The President’s proposal does not specifically address bonus depreciation, small business expensing, PATH Act business incentives or energy tax incentives.

Moving Forward with Tax Reform

At this time, the White House tax reform outline is only a proposal.  No legislation has been introduced. Administration officials are not setting a firm timeline, but Marc Short, President Trump’s Director of Legislative Affairs adds, “I don’t see this sliding into 2018”.

We will continue to post updates as legislation is introduced. To learn more about the original, extensive proposals, read the Proposed Tax Changes for Individuals Under GOP House Blueprint and Donald Trump and Proposed Corporate Tax Changes Under the GOP House Blueprint and Donald Trump. Contact an Anders advisor with any questions.