Yesterday, the much-anticipated Republican tax plan was released to the public. Many hoped this document would provide specifics about what tax reform might actually look like. However, this latest draft is just an expanded version of the two-page document the White House released in April.
The framework touches almost every tax category in the Code with the following proposals.
- Individual rates are set at 12%, 25% and 35% — with the option for a fourth bracket on the highest income households, should finding a Democrat to vote “yes” become necessary
- Standard deduction is doubled – $24,000 for married couples and $12,000 for individuals – and the personal exemption is repealed
- Personal exemptions for dependents are repealed but the child tax credit is increased
- The Alternative Minimum Tax (AMT) is repealed
- The only available itemized deductions would be for mortgage interest and charitable contributions
- The estate and generation-skipping transfer (GST) taxes are repealed
- Pass-through entities have a 25% tax rate — with the directive to create “measures” to stop recharacterizing personal income as business income
- Corporate tax rate is 20% and corporate AMT is eliminated
- Immediate write-offs available for newly purchased depreciable assets and a partial limitation of the net interest deduction
- The research and development (R&D) and low-income housing incentives are preserved
- All dividends from foreign subsidiaries of a U.S. parent are provided a 100% income tax exemption
- All accumulated foreign earnings are deemed repatriated
- Rates on foreign profits of U.S. multinational corporations are reduced
Ultimately, this tax framework is an outline of all the changes Republicans would like to see, if money and opposition were no matter. This framework is too light on details and too costly to be anything more than an initial negotiating position. There are still members of Congress who worry about what stimulating economic growth will do to the federal deficit, which means that these proposals are facing an uphill battle. It also leaves many of the truly crucial details to be ironed out by the various tax writing committees, giving all parties room to move as they try to turn this wish list into an actual tax plan. In many ways, this proposal feels much like the now-failed multi-year campaign to “repeal and replace” the Affordable Care Act. It’s heavy on rhetoric and light on specifics.