Skip to main content
IMA Tax Policy Blog

White House Announces Tax Plan

Baker Tilly is an IMA member firm…

The Trump administration recently announced its tax plan, labeling it the largest corporate tax cut in history. It includes a significant reduction in the corporate tax rate, changes to the standard deduction for individuals, a one-time repatriation of foreign earnings and broad outlines for other changes to the Internal Revenue Code. The announcement can best be described as the core principles the White House is advocating for tax reform; most specifics have not yet been released.

This proposal can be viewed as the opening round in negotiating a tax reform plan in a divided Congress. This is just a starting point as the House is expected to review this in conjunction with its own blueprint for tax reform. Members of the House and Senate, from both sides of the aisle, are already weighing in that the plan would dramatically increase the deficit, so expect a vigorous debate with numerous changes and compromises along the way.

The bottom line is to view the plan as an initial proposal and keep a close eye on the provisions that are most important to you. However, it is far too early in the process to view any of these items as actionable. We believe the earliest something will be enacted would be near the end of the year.

Administration proposals:

Businesses

  • Reduce the corporate rate to 15 percent
  • Make small businesses (presumably pass-through entities and sole proprietorships) eligible for the 15 percent rate
  • Repatriate foreign earnings at a one-time rate; negotiations are ongoing with Congress over what that rate would be, and no specific rate was discussed in the announcement
  • Change the U.S. tax system from a worldwide system to a territorial system

 

Individuals

  • Reduce the number of brackets to three from seven: 10 percent, 25 percent and 35 percent
  • Double standard deduction so married taxpayers filing jointly would not pay income taxes on the first $24,000 of income
  • Repeal the alternative minimum tax (AMT)
  • Eliminate all itemized deductions other than mortgage interest and charitable contributions
  • Repeal the 3.8 percent Affordable Care Act tax on net investment income that applies to individuals who earn more than $200,000 a year
  • Repeal the estate tax, which currently applies only to estates worth more than $5.49 million for individuals and $10.98 million for couples
  • Adjust the child and dependent benefit: the administration signaled support for changes to the tax code that would help families with childcare costs, but no specific details were released

Not included in the announcement, however, is a border adjustment tax like the one proposed by House Republicans or other revenue-raising provisions to offset the tax cuts. Treasury Secretary Steven Munchin didn’t rule out the border adjustment tax completely, though, saying that while it “doesn’t work in its current form,” the administration will continue discussing revisions with GOP lawmakers. The Treasury secretary also reiterated recent statements that Trump’s tax cuts would be paid for by dramatically increased economic growth and that the administration was expecting sustained annual GDP growth of 3 percent or higher, up from the current 1.8 percent.

As reported by the Bureau of National Affairs (BNA), the tax reform proposal would cost roughly $5.5 trillion, and could cost as much as $7 trillion, according to the nonpartisan Committee for a Responsible Federal Budget. The committee’s report added that the country would need roughly a 4.5 percent sustained growth rate to pay for the entire plan, or nearly two-and-a-half times the 1.8 percent that the Congressional Budget Office (CBO) projects to occur over the next decade. The last time the country achieved 4 percent sustained growth was in the late 1960s and early 1970s.

 

Source: Baker Tilly

X