Recently, House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady released a blueprint for comprehensive tax reform. While these proposed changes are not authored by either presidential nominee, they will likely be an integral part of any tax reform taking place in 2017, assuming the Republicans maintain House control. The blueprint is a step towards tax law simplicity and is pro-growth, leading some to believe the Senate might take action on similar legislation as well. Ways and Means Committee staff have indicated they want to work with stakeholders to formulate details in order to prepare a tax bill to be considered in 2017. A few of the tax law changes highlighted below deal with foreign earnings of U.S. companies and are aimed at providing the U.S. a better playing field on the international stage. All of these provisions were strongly touted at the Republican National Convention this week.
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Blueprint Highlight |
Details |
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Corporate tax rate |
20% statutory |
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Business interest expense deductions |
Deduction only allowed against interest income; unused deduction may be carried forward indefinitely |
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Corporate tax credits |
All eliminated except Research & Development credit |
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Net operating losses |
Carry-forward allowed indefinitely, limited to 90% of taxable income in year used; carry-back eliminated |
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Capital expenditures |
100% expensing, including tangible and intangible property (but excluding land) |
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Taxation of foreign earnings |
Territorial; 100% exemption for dividends from foreign subsidiaries |
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Mandatory repatriation tax rate |
8.75% for cash and cash equivalents; 3.5% other |
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Pass-through entity tax rate |
25% maximum tax rate on business income from partnerships, S corps, Schedule C entities and other pass-throughs |
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Alternative Minimum Tax |
Eliminated for corporate and individual taxpayers |
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Estate tax |
Eliminated |
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Individual tax rates |
12%, 25%, 33% |
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Itemized Deductions |
All eliminated except mortgage interest and charitable contributions |
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Capital gain tax rates |
50% deduction, leading to tax rates of 6%, 12.5%, 16.5% |
The plan also calls for restructuring of the Internal Revenue Service into three separate units. The first focusing on individuals and families, the second focusing on businesses and the third being a small claims court focused on resolving common tax disputes to cut back on costly legal and administrative actions.
If fully adopted, this blueprint would be the most meaningful tax reform measure since 1986. It is intended to stimulate job growth here in the U.S. and stem the flow of U.S. jobs overseas. A major assumption is a significant boost to economic growth due to these tax policies. Otherwise, the deficit and national debt will be adversely affected.
The plan for new tax legislation, along with the potential restructuring of the IRS will continue to evolve over the coming months, partially hinging on the outcome of the fall elections. The HORNE Tax Legislation and Policy Group will continue to monitor and report on these evolving tax issues, and we will assist clients with proactive planning as events warrant.
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About the Co-Author:
Brielle Pepper, CPA, is a senior associate at HORNE LLP. Her primary focus is in the area of tax compliance for public and middle market clients. Brielle joined Horne in 2013.
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