President Trump on April 26th unveiled skeletal outline of a tax package. A single-page statement with bullet points was headed “2017 Tax Reforms for Economic Growth and American Jobs” and “The Biggest Individual And Business Tax Cut In American History”. The outline mirrors the provisions contained in the House Republican’s Blueprint issued in March, and the reform is expected to be finalized by end of 2017.

The outline explains that the tax reforms will i) grow the economy and create millions of jobs, ii) simplify our burdensome tax code, iii) provide tax relief to American families – especially middle-income families, and iv) lower the business tax rate from one of the highest in the world to one of the lowest.

For Individual:

For individuals, the proposal would replace the current 7 tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) to 3 tax brackets (10%, 25%, and 35%). The outline nor the administration has not yet say at what income levels those rates would apply.

The proposal would double the standard deduction, and provide tax relief for families with child and dependent care expenses. However, the document does not say how that might differ from the current child tax credit.

The document states that the reform would simplify the current legislation by i) eliminating targeted tax breaks that mainly benefit the wealthiest taxpayers, ii) protecting the home ownership and charitable gift tax deductions, iii) repealing the Alternative Minimum Tax, and iv) repealing the death tax (estate tax). It also states that the reform would repeal the Obamacare tax penalty that “hits small business and investment income”.

For Business:

For businesses, other than lowering the top tax rate to 15%, the proposal would call for a territorial tax system, which generally would exclude from taxation foreign earned income.

It also would impose a “one-time tax on trillions of dollars held overseas” and on which tax is deferred. This one-time tax can be the same as, or consistent with, a deemed repatriation tax that Trump has previously proposed at a 10% rate.

It is interesting that the proposal did not mention any border-adjustment, or destination-based tax. This has been a key feature of the blueprint for tax reform. This might be because this feature has been criticized as problematic for U.S. importers and others and likely to be challenged internationally under World Trade Organization rules.

Treasury Secretary Steven Mnuchin said that it is the administration’s intention to “move as fast as [they] can and get this done this year”. Congressional leaders have expressed concerns about the proposal as it promises to give tax cuts without specifically identifying revenue offsets. During the presidential campaign, Trump said that the plan would be revenue-neutral, and Mnuchin confirmed that the proposal would “pay for itself, with economic growth and with reduction of different deductions and closing loopholes”.

As we mentioned earlier this year, with Republicans’ domination over the House and Senate, significant tax reform reflecting what Trump promised during the campaign is expected. Taxpayers are recommended to continually monitor the tax legislation process and plan in advance to minimize adverse impact of the tax reform.

Please see our coverage of Trump’s Tax Reform:

http://www.kyjcpa.com/news-updates/blueprint-for-tax-reform/

http://www.kyjcpa.com/news-updates/trumps-tax-policy/