Update on tax-reform

Major parts of the tax-reform framework from the "Big Six" group of congressional and White House tax reform principals have been released. Here are some highlights:

1.      Corporate Tax Rate - Corporate maximum tax rate of 20% which is below the 22.5% average rate of the industrial world

2.      Tax Rate on Flow Through Business Income - Flow through entity tax rate of 25% on business income

3.      Individual Tax Rate - Individual maximum tax rate of 35%. The framework aims to consolidate the current seven tax brackets into three brackets of 12%, 25% and 35%. A potential fourth bracket for highest earners might be generated.

4.      AMT - Repeal of the Corporate and the Individual Alternative Minimum Tax (AMT)

5.      Itemized Deductions - Elimination of most itemized deductions except for Mortgage interest and Charitable Contributions

6.      Capital Expensing - Immediate expensing of new investments in depreciable assets (other than structures), made after 9/27/17, for at least five years

7.      Interest Expense - Partial limitation of interest expense incurred by a C corporation (no detail here) and consideration of appropriate treatment of non-corporate taxpayers

8.      Domestic Production (Manufacturing) Deduction - Elimination of the Section 199 domestic production (manufacturing) deduction due to the lower tax rate incentive

9.      R&D Tax Credit - Continued ability to claim the R&D tax credit

10.  Tax on Foreign Earnings - Change to a territorial exemption for foreign subsidiaries, with 100% exemption for dividends from foreign subsidiaries where U.S. owns at least 10% interest. Foreign earnings existing under the current system will be treated as repatriated, with two tax rates (one rate for illiquid assets and a higher rate for cash), with payment spread over several years—the actual rate is not mentioned. 

Estate Tax – The Estate tax and Generation Skipping Tax (GST) will be repealed but there is no mention of the gift tax