Tax Law Revisions President-elect Trump and Committee Chairman Ryan Tax Reform Plans

Published: Sep 28, 2017
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With the consideration of health care legislation put aside, at least for the present, the primary focus in Washington is now on tax reform. This effort could result in the most consequential tax law changes since the Tax Reform Act of 1986.

On September 27, 2017, the Trump Administration, the House Ways and Means Committee and the Senate Finance Committee released a framework for tax reform – “Unified Framework For Fixing Our Broken Tax Code.” From this framework, legislation is to be developed by the tax writing committees of Congress.

We will monitor developments as the process moves forward in earnest and will continue to keep our clients and friends informed as circumstances warrant.

Corporate and International Tax Provisions

	Current Law	Tax Reform Framework
Top Corporate Tax Rate	35%	20%
Top Passthrough Tax Rate	39.6%	25% on business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations House and Senate committees to adopt measures to prevent recharacterization of personal income into business income
Carried Interest	Taxed as long-term capital gain	No specific proposal
Corporate Alternative Minimum Tax	Imposed on corporation to extent tentative minimum tax exceeds regular tax	Repeal
Depreciation	Cost recovery over period of years	Full expensing for the cost of new investments in depreciable assets other than structures made after September 27, 2017 for at least 5 years
Interest Expense	Generally deductible	Deduction for net interest expense incurred by C corporations partially limited Committees to consider appropriate treatment of interest paid by non-corporate taxpayers
Net Operating Losses (NOLs)	Generally may be carried back two years and carried forward 20 years	No information
Research credit	Generally either 20% credit for qualifying research expenses in excess of base amount or 14% alternative simplified credit	Retain
Domestic Production Activities Deduction (IRC Sec. 199)	Up to 9% deduction for certain income attributable to domestic production activities	Repeal
Employer Provided Child Care	$150,000 maximum tax credit for on-site childcare Portion of credit subject to recapture if child care facilities closed within first 10 years after placed in service	No information
Taxation of International Income	Worldwide with deferral	Territorial 100% exemption for dividends from foreign subsidiaries (in which U.S. parent owns at least 10% interest) To prevent companies from shifting profits to “tax havens,” rules to protect U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations Rules to be adopted to “level playing field” between U.S.- headquartered parent companies and foreign-headquartered parent companies
Repatriation	Repatriated foreign source income taxed at full corporate rate subject to foreign tax credit or deduction	Foreign earnings that have accumulated overseas under current system treated as repatriated Accumulated foreign earnings held in illiquid assets taxed at a lower rate than foreign earnings held in cash or cash equivalents Payment of tax liability spread over several years
Cross-border transactions	Silent	No information
Subpart F income	Subpart F rules limit deferral for certain foreign income	No information

Individual Tax Provisions

	Current Law	Tax Reform Framework
Ordinary Income Tax Rates	7 brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%	12%, 25% and 35% Additional top rate may apply Use of more accurate measure of inflation for indexing tax brackets and other tax parameters
Capital Gains/Qualified Dividends	Short-term capital gains (held less than 1 year) taxed at ordinary income rates Long-term capital gains (held 1 year or more) taxed at preferential rates, top rate of 20% Dividends taxed as ordinary income; qualified dividends taxed at capital gains rates	No Information
Alternative Minimum Tax	Alternate tax calculation based on 26%/28% tax rate, payable if greater than regular tax calculation	Repeal
Net Investment Income Tax	3.8% above $200,000 adjusted gross income (single), above $250,000 (married filing jointly)	No Information
Medicare Surtax on Wages	0.9% --adjusted gross income greater than $200,000 (single), adjusted gross income greater than $250,000 (married filing jointly)	No Information
Personal Exemptions	$4,050; Personal exemption phase-out applies for taxpayers with adjusted gross income above certain amounts	Eliminate
Itemized Deductions	Phase-out applies to taxpayers with adjusted gross income above certain amounts	Eliminate most itemized deductions except home mortgage interest and charitable contributions
Standard Deduction	$6,300 (single and married filing separately) $9,300 (head of household) $12,600 (married filing jointly) Additional standard deduction ($1,250) for elderly or blind	Standard deduction and personal exemption combined and increased to $12,000 (single) and $24,000 (married filing jointly)
Children and Families	Childcare tax credit	Repeal personal exemptions for dependents Increase Child Tax Credit First $1,000 of Child Tax Credit refundable as under current law Increase income levels at which Child Tax Credit begins to phase out Non-refundable credit of $500 for non-child dependents