Trump Administration Announces Outline of Tax Reform Preferences

On April 26 President Trump's top economic advisers outlined general principles and specific provisions of the Administration's tax reform proposal. The tax plan, which had been much-anticipated in Washington, offered little details that customarily accompany such policy proposals, such as how it would be financed, phase-in periods, etc., but nonetheless amounts to an important moment in the ongoing effort to enact sweeping tax reform legislation in Congress this year, reflecting a desire on the part of the Administration to take more of a leadership role on this issue rather than deferring to Congressional Republicans.

With respect to NATSO members, the plan would lower the corporate tax rate from 35 percent to 15 percent, including for pass-through entities. It also would permanently eliminate most corporate deductions, likely including the biodiesel tax credit and alternative fuel tax credits (though the proposal is silent on these specific details). Many in the transportation industry are hopeful that revenue raised from the Trump Administration's plan to impose a one-time tax on the repatriation of overseas profit could provide a source of funding for infrastructure projects, a concept NATSO would support. The plan would also phase out the estate tax.

The plan calls for:

  • Reducing the current number of income brackets from seven to three--10%, 25%, and 35%-- though it does not specify the income thresholds associated with each rate. Individual tax rates currently have a ceiling of 39.6 percent and a floor of 10 percent. Most Americans pay somewhere in between the two.
  • Roughly doubling the standard deduction so that individuals would not be required to pay income tax on the first $12,000 they earn, and joint filing couples would not be required to pay income tax on the first $24,000 they earn.
  • Providing child and dependent care tax credits.
  • Repealing the Alternative Minimum Tax. 
  • Repealing the 3.8 percent Affordable Care Act tax on investment income.
  • Phasing out the estate tax. 
  • Eliminating all itemized deductions except for the mortgage interest and charitable contribution deductions.

With respect to the corporate tax code, the plan would:

  • Lower the corporate tax rate from 35 percent to 15 percent, including for pass-through corporations. 
  • Shift to a territorial tax system, under which American companies would be required to pay taxes only on the income that is related to U.S. activities.
  • Imposing a one-time tax on the repatriation of overseas profits.

A significant outstanding issue in tax reform will be how regulators will enforce a 15 percent tax rate for pass-through entities while there is a higher rate for individual income. Indeed, owners would be incentivized to accept low salaries (which would be taxed at the higher rate) and take more income as business income (taxed at a lower rate). One option Congress has discussed would be a default presumption where 70 percent of a owner's income is compensation and no more than 30 percent is business income, but these details still need to be worked out.

Congressional Republicans, led by House Speaker Paul Ryan, have released a "Blueprint" for tax reform that is somewhat different than the White House plan. Most significantly, the White House plan does not include a "border adjustment tax" on imports that is a centerpiece of the House Blueprint. The House border adjustment plan would essentially tax imports without taxing exports, a plan that would raise large amounts of revenue but likely raise fuel prices, particularly in strong import markets such as the West and the Gulf.

via Business Feeds

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