On April 26, Treasury Secretary Steven Mnuchin and Gary Cohn, director of the National Economic Council, presented the Trump Administration's tax reform proposal to the media. The proposal consisted of a one-page outline that hewed closely to President Trump's tax proposal offered during the campaign. The outline calls for lower taxes across the board for both individuals and businesses. On the individual side, President Trump's proposal seeks to eliminate most itemized deductions except for the mortgage interest deduction, charitable donation deduction and retirement savings deduction. It would also reduce the current seven income brackets to three – 10, 25 and 35 percent – although officials did not offer income ranges for each bracket. It also eliminates the estate tax and the alternative minimum tax, doubles the standard deduction and calls for some sort of a dependent care benefit.

Under the proposal, business taxes would be cut from 35 percent to 15 percent across the board and the new rate would apply to both corporate income as well as pass-through income. The proposal also includes a transition from a global tax system to a territorial tax system and creates an as-of-yet-unspecified, one-time opportunity to repatriate existing profits held overseas. Notably, the proposal does not include the Border Adjustment Tax supported by Speaker Paul Ryan (R-WI).

Congressional Republicans and Democrats greeted the proposal as expected, with Republicans hailing the proposal as "critical guideposts" and Ranking Democrat of the Senate Finance Committee Senator Ron Wyden (D-OR) calling the proposal "an unprincipled tax plan that will result in cuts for the one percent." Expect the proposal – which will likely serve as a starting point for debate – to be modified significantly in the coming months. Congressional Republicans are reportedly considering moving forward with the tax reform package under the Reconciliation rules, limiting debate and blunting the threat of a Democratic filibuster in the Senate. If Congressional Republicans elect to follow this path, the so-called "reconciliation instructions" from the Budget Committees to the Senate Finance and House Ways and Means Committees will significantly determine the outline of the debate. However, moving forward under these procedures means any tax reform bill, which as proposed during the presidential campaign was estimated to add about $7 trillion to the deficit, would have to be deficit neutral over ten years. So far, the Administration has not yet identified sufficient pay-fors or spending cuts to fully offset the proposal.

Takeaway: With release of the White House's tax reform plan, the debate now shifts to Congress, where Republicans in the House and Senate will debate the proposal most likely as part of the FY18 budget process, providing additional substance to the outline presented by the Trump Administration. With its numerous stakeholders and trillions of dollars at stake, tax reform is an incredibly difficult and complex undertaking. Expect the negotiation process to be drawn out and contentious.