Wednesday, the White House released a one-page “summary” of its proposed plan for comprehensive tax reform, and Secretary of the Treasury Steven Mnuchin and Director of the National Economic Council Gary Cohn held a press conference to explain it. While the information released by the White House was useful to help start the debate on tax reform, it is less of a plan and more of an outline as to what they would like their plan to look like.
Components of President Trump's Tax Plan
- Reduce seven tax brackets to three: 10%, 25%, 35%
- 15% business tax rate
- Double the standard deduction
- Repeal Alternative Minimum Tax
- Repeal estate tax
- Repeal 3.8% Obamacare tax that “hits small businesses and investment income”
- One-time tax on “trillions of dollars held overseas”
- Territorial tax system to “level playing field” for U.S. companies
- Tax relief for families with child, dependent care expenses
- Eliminate targeted tax breaks that mainly benefit wealthiest taxpayers
- Protect “home ownership,” charitable gift tax deductions
- Eliminate tax breaks for special interests
Congressional Republicans both privately and publically expressed restrained support for the outline. That was more positive reaction than many had expected, and Congressional insiders generally expressed the sentiment that "they are on the same page goal wise." That being said, there are still major structural differences on key elements such as pay-fors, dynamic scoring, and outreach to Democrats.
While there is much to like, there is still a long way to go to solve the proposal’s most basic issues. Those issues include the overall price tag of the eventual package and whether it is deficit neutral, which would make it possible to use the reconciliation process to pass tax reform with just 51 votes in the Senate. These fundamental issues will help shape the discussion on many key matters, including the border adjustment tax (a value-added tax levied on imported goods) – which President Trump now seems to dislike and House Republicans appear to like.
For now, this will open up an interesting dialogue and will unleash an army of lobbyists to defend every provision of the current tax code. The devil will most certainly be in the forthcoming details, which will provide a clearer outlook of whether passing comprehensive tax reform will be possible this Congress. Ultimately, there is still a long way to go on provisions, process, and politics.
Next Steps - Where do we go from here?
Currently, the only comprehensive plan belongs to the House Republicans, and for the time being, they intend on proceeding with their plan. The White House expects to have their comprehensive plan ready for release later this summer, and it remains to be seen how much it will differ from the outline described above. For the time being, we expect Congress and the White House to continue their public conversations and private consultations to see if they can end up on the same page and ultimately get something passed and signed into law.
Another interesting thread from the federal tax reform debate is the collateral impact on state income tax regimes, as most states automatically incorporate select provisions of the Internal Revenue Code in defining their individual and corporate income tax base. Broadening the base at the federal level will likely increase revenues as the state level, unless states also consider rate reductions or other reforms in tandem with the federal reforms.
Comprehensive tax reform will impact every business and every family in America. Our Government Affairs & Tax Practice Groups will be closely following every aspect of this important debate. Please do not hesitate to reach out to any of the authors or members of our firm if you have any questions.