In April, President Trump released his goals for tax reform. The House Republicans Blueprint for Tax Reform was published in June 2016 as well. Although we can’t predict exactly what the future holds, reviewing these two tax proposals can give us an idea of what we might expect.
Here is a side by side comparison of the House GOP and president’s proposals, including reforms for both individuals and businesses.
In comparing both proposals, here are some of the highlights:
(1) Both plans reduce the current seven individual income tax rates to three brackets. However, it is too early to tell what the brackets will be or the tax rates in each bracket.
(2) Most itemized deductions would be eliminated except for mortgage interest and charitable contributions. However, to offset the loss of many of these deductions, the standard deduction would be increased. Of significance to many states with an income tax or high property taxes, this would mean the loss of the deduction for state income taxes and for property taxes for individuals. It is not clear whether the remaining deductions would be classified as itemized deductions or may move to “above the line” (i.e., those used to determine adjusted gross income).
(3) Both plans repeal the alternative minimum tax.
(4) Both plans repeal the 3.8 percent net investment income tax which was used to help fund Obamacare.
(5) Both plans call for some form of change in estate taxes, ranging from Trump’s call for the “repeal of the death tax,” while the House Blueprint calls for repeal of the estate and gift tax. However, there are many unanswered questions about what this means. Will this only affect the estate and generation skipping tax? Will it include the gift tax too? What about the step-up basis of assets at death, which has occurred when assets are included in a gross estate?
Want to learn more about what we do?
(6) The business tax rate would decrease to 15 percent in the president’s plan, and to 20 percent in the House plan.
(7) Of great significance for small business owners, the top tax rate for pass-through businesses (such as partnerships, limited liability companies, S corporations, and sole proprietorships) would decrease from the top income tax bracket to 15 percent in the president’s plan and to 25 percent in the House plan; but just how much the pass-through income could be taxed at the lower rates may hinge on the amount of cash distributions made from the entity.
It is not clear when or if tax reform will occur in 2017, but in the news conference unveiling the president’s plan, Treasury Secretary Steven Mnunchin expressed the desire to enact something in 2017. If tax reform only passes by a simple majority in the Senate, similar to the 2001 Tax Act, most provisions would then sunset after 10 years.
Anne Ertel-Sawasky, Esq.
Chief Compliance Officer
Business Succession Planning Advisor
