Republicans have announced a new plan for reforming the US tax code, including a reduction to the corporate tax rate to 20 percent, the adoption of a territorial tax system, and a one-time tax on multinationals' unrepatriated earnings.
The long-awaited unified framework for US tax reform, prepared by the Trump Administration and Republican members of the House Committee on Ways and Means and the Senate Committee on Finance, was launched by President Trump at a rally in Indiana on September 27.
The main proposals include:
- Consolidation of the current seven individual income tax brackets into three rates of 12, 25, and 35 percent, and potentially an additional top rate for the highest-income taxpayers;
- An increase to the standard deduction for individuals to $24,000.00 for married taxpayers filing jointly and $12,000.00 for single filers;
- Significant expansion of the Standard Deduction and Child Tax Credit;
- Elimination of "most itemized deductions," apart from those relating to home mortgage interest and charitable contributions;
- Repeal of the estate tax, the generation-skipping transfer tax, and the Alternative Minimum Tax;
- A cap on tax on pass-through businesses at a maximum rate of 25 percent;
- Allowing businesses to immediately expense the cost of new investments, for a period of five years; and
- The retention of the research and development tax credit and the Low Income Housing Credit.
On international tax matters, the plan includes proposals for a one-time tax on unrepatriated income currently held overseas, with two different rates for cash and non-liquid assets, as part of a transition to a territorial corporate tax system. The plan also calls for a "100 percent exemption for dividends from foreign subsidiaries (in which the US parent owns at least a 10 percent stake)." Further, "to transition to this new system, the framework treats foreign earnings that have accumulated overseas under the old system as repatriated."
The unified framework will serve as a template for the tax-writing committees, which will now begin work on developing the appropriate legislation. It is anticipated that the package will require support also from Democrat lawmakers to pass.