Looking for a “win” after the repeated failures of Obamacare repeals, Republican legislators have released the outline of an ambitious tax reform package.
The Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance worked together on the unified framework, released on Sept.27.
The release of the plan took place at a press conference attended by Majority Leader Mitch McConnell (R-Ky.), Senate Finance Committee Chairman Orrin Hatch (R-Utah), House Speaker Paul Ryan (R-Wis.), and House Ways and Means Committee Chairman Kevin Brady (R-Texas).
“A fairer rate for American small businesses will give these proven job creators an opportunity to further grow their businesses and hire new workers with better pay,” Hatch said in prepared remarks. “Modernizing our tax structure to better meet the demands of the 21st century economy will prevent foreign competitors from gaming the U.S. tax system and encourage American companies to bring back jobs and profits that have been stranded overseas.”
The framework reduces the corporate tax rate to 20 percent, “below the 22.5 percent average of the industrialized world,” Republicans say. In addition, it aims to eliminate the corporate alternative minimum tax, as recommended by the non-partisan Joint Committee on Taxation. The committees also may “consider methods to reduce the double taxation of corporate earnings,” the announced plan says.
The framework also allows businesses to immediately write off (or “expense”) the cost of new investments in depreciable assets other than structures made after Sept. 27, 2017, for at least five years. This policy “represents an unprecedented level of expensing with respect to the duration and scope of eligible assets,” Republicans says. The deduction for net interest expense incurred by C corporations will be partially limited and the committees will consider the appropriate treatment of interest paid by non-corporate taxpayers.
“Because of the framework’s substantial rate reduction for all businesses, the current-law domestic production (section 199) deduction will no longer be necessary,” the plan says. “Domestic manufacturers will see the lowest marginal rates in almost 80 years. In addition, numerous other special exclusions and deductions will be repealed or restricted.”
The framework “explicitly preserves business credits in two areas where tax incentives have proven to be effective in promoting policy goals.” They include research and development and low-income housing. While the framework envisions repeal of other business credits, the committees may decide to retain some other business credits to the extent budgetary limitations allow.
Special tax regimes exist to govern the tax treatment of certain industries and sectors. The framework seeks to modernize these rules to ensure that the tax code better reflects economic reality and that such rules provide little opportunity for tax avoidance.
“The framework ends the perverse incentive to offshore jobs and keep foreign profits overseas,” the tax plan adds. “The framework brings home profits by imposing a one-time, low tax rate on wealth that has already accumulated overseas so there is no tax incentive to keeping the money offshore.”