Tax Reform Takes Another Step Forward
As we mentioned during Boston Private’s recent webinar on tax reform, Republican tax writers released their framework for tax reform on Sept. 27. The plan provides the broad contours of a reform package while allowing Congress to work its will and fill in most of the details, including tax revenue offsets for the cost of specified tax cuts.
The framework indicates the tax writing committees — House Ways and Means and Senate Committee on Finance — will work to modernize the rules governing tax treatment of certain industries and sectors to ensure that U.S. tax code better reflects economic reality and that such rules provide little opportunity for tax avoidance.
Key Proposals Impacting Individuals
- Repeals the individual alternative minimum tax;
- Repeals the estate and generation-skipping transfer taxes;
- Doubles the standard deduction; however, it is partially offset by elimination of the personal exemptions for taxpayer and spouse;
- Consolidates the number of tax brackets to three — 12 percent, 25 percent and 35 percent. Excludes the first $24,000 of income earned by a married couple and $12,000 earned by a single individual from taxation. However, the proposal does not specify the dollar thresholds for the rate brackets and does not rule out the imposition of an additional top rate to the highest-income taxpayers;
- Eliminates most itemized deductions, except home mortgage interest and charitable contributions;
- Provides a non-refundable credit of $500 for non-child dependents to help defray the cost of caring for other dependents.
- Does not include a reduction in the tax rate of capital gains, dividends and interest, which was widely expected to be in the proposal. It could be added during the Congressional debate on the plan.
Key Proposals Impacting Corporations
- Reduces the corporate tax rate to 20 percent and anticipates eliminating the corporate alternative minimum tax;
- Provides a 25 percent tax rate for active business income of sole proprietorships, partnerships, and S corporations. The tax committees will design appropriate measures to prevent re-characterization of all compensation as active business income to take advantage of the lower rates;
- Allows immediate expensing of purchases of depreciable assets other than structures made after Sept. 27, 2017, for at least five years;
- Imposes an unspecified limitation on the deduction for net interest expense incurred by corporations. The framework provides that the tax writing committees will consider the appropriate treatment of interest paid by non-corporate taxpayers;
- Eliminates the Internal Revenue Code Section 199 domestic production credit;
- Maintains tax incentives for research and experimentation and low-income housing, while eliminating other business credits as deemed appropriate by the committees.
Key Proposals Impacting International Corporations
The general framework is designed to put America on a level international playing field and end incentives for shipping jobs overseas.
- Provides a 100 percent exemption for dividends received from foreign subsidiaries in which the U.S. parent owns at least a 10 percent stake;
- Taxes the foreign profits of U.S. multinational corporations on a global basis at an unspecified reduced tax rate;
- Calls for repatriation of accumulated corporate earnings held offshore at tax reduced rates. An unspecified two-tiered rate system would be imposed to differentiate between illiquid assets and cash or cash equivalents with the tax liability spread over an unspecified number of years.
The tax writing committees will start filling in the details, reviewing the plan with its members and preparing for committee action over the next few months. Stay tuned, it’s just the beginning of the process that normally takes several months and many provisions will change and others added. We will keep you informed.
View the Webinar
Washington policy expert Doug Fisher moderated a roundtable discussion with Boston Private experts Brian Lopez, Managing Director of Retirement Plan Advisory Services, and Shannon L. Saccocia, Executive Managing Director, Head of Asset Allocation and Portfolio Strategy, about how Washington’s latest tax reform proposals may impact individuals and businesses – from a tax planning, retirement planning, and investment perspective.
Boston Private is pleased to announce a partnership with Doug Fisher, a Washington Policy expert, who will offer a series of insights into a number of reform proposals making their way through Congress in 2017. Doug is Director of Retirement Policy at the American Retirement Association. In this role, Doug works with the ARA membership to protect, advise and grow their businesses through ideation and advocacy in the benefits area. Before joining ARA, Doug led Fidelity's legislative policy and thought leadership development teams involving retirement, health and welfare benefit plans. Doug has advised many Fortune 1,000 companies on the impact of legislation and regulation on the design and delivery of benefits. Before joining Fidelity, Doug served as tax counsel to the U.S. Senate Finance Committee and was involved in writing the pension, health and insurance provisions of the Small Business Job Protection Act of 1996; the Balanced Budget Act of 1997, including the Roth IRA, Simple retirement plan, medical savings account (predecessor to the health savings account); and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
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