A Comparison of Trump and House GOP Tax Reform Proposals

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HIGHLIGHTS:

  • With Republicans in control of the U.S. Senate, the U.S. House of Representatives and the White House starting in 2017, the federal government is now better positioned to move forward on comprehensive tax reform.
  • It is expected that upcoming tax reform efforts will build on the principles set forth in the House Republicans' "A Better Way" proposal, as well as the tax proposals advanced by President-Elect Donald Trump during the course of his campaign.

With Republicans in control of the U.S. Senate, the U.S. House of Representatives and the White House starting in 2017, the federal government is now better positioned to move forward on comprehensive tax reform, with anticipated legislation that restructures both the individual and business income tax provisions of the Internal Revenue Code. It is expected that upcoming tax reform efforts will build on the principles set forth in the House Republicans' "A Better Way" proposal, released by House Speaker Paul Ryan (R-Wis.) in June 2016, as well as the tax proposals advanced by President-Elect Donald Trump during the course of his campaign. Trump's original tax plan was proposed in September 2015, and his revised tax plan was proposed in September 2016.

Below is a comparison of the House GOP plan and the Trump plan. While there are many differences in the extent of tax relief promoted by each plan (with Trump's being by far the more generous), there are many similarities on key issues, including significant cuts in both individual and business tax rates, repeal of the estate tax and efforts to position U.S. businesses to compete on a more level playing field internationally. Of course, there are many details still to be completed, and many House Republicans have made it clear that they have no intention of passing huge tax cuts that would worsen the growing federal deficit. For the most part, however, details about any offsetting tax revenue raisers that may be imbedded in tax reform have yet to be worked out or disclosed.

It is important to note that any House-passed tax reform may need to be negotiated with the Senate, led by Minority Leader Charles Schumer (D-N.Y.) and Senate Committee on Finance Chairman Orrin Hatch (R-Utah). The Democrats' priorities differ significantly in focus from the Republican proposals, and it is likely that the Democrats' strong minority will, under Senate rules, make them key players in developing any tax reform legislation that can pass the Senate. Additionally, Hatch and his staff have been working for months on a comprehensive "corporate integration" tax plan aimed at eliminating the double taxation of income earned by corporations, but the plan has not yet been released. Such a plan may be substantially different than the House GOP or Trump plans.

Tax Reform Proposal

Trump Plan

House GOP Plan

Individual Tax Rates

Three brackets:

12 percent

25 percent

33 percent

 

Eliminate head-of-household status

Three brackets:

12 percent

25 percent

33 percent

Capital Gains and Qualified Dividends Rates

0 percent if in 12 percent bracket

 

15 percent if in 25 percent bracket

 

20 percent if in 33 percent bracket

50 percent exclusion for all investment income (dividends, capital gains and interest)

Personal Exemption

Replaced with above-the-line deduction for child care and elder care expenses, as well as tax-deferred Dependent Care Savings Accounts

Replaced with increased dependent credit and expanded child tax credit

Standard Deduction

$15,000 for single filers

 

$30,000 for joint filers

$12,000 for single filers without children

 

$18,000 for single filers with children

 

$24,000 for joint filers

Itemized Deductions

Capped at $100,000 for single filers and $200,000 for joint filers

Silent

Exclusion of Investment Income on Life Insurance Contracts

Repeal*

Silent

Alternative Minimum Tax (AMT)

Repeal

Repeal

Marriage Penalty

Repeal

Repeal

Home Mortgage Interest Deduction

Retain*

Retain

Carried Interest

Taxed as ordinary income

Reasonable compensation will be paid or treated as paid by pass-through entities to owner-operators

 

Entity can deduct the income and owners must include it in income

Corporate Tax Rate

15 percent

20 percent

Depreciation

If election is made, immediate deduction of capital expenditures by manufacturers

 

Interest on debt used to acquire such assets would not be deductible

Immediate deduction of capital expenditures

Business Tax Rate

Income from S corporations, partnerships, disregarded entities and sole proprietorships would be taxed at 15 percent

Income from S corporations, partnerships, disregarded entities and sole proprietorships would be taxed at 25 percent

Interest Deduction

"Reasonable cap" on the deductibility of business interest expenses*

Limited to interest income

 

Excess interest expense carries over to following years

 

Exceptions to be developed for financial businesses (e.g., banks, insurers, etc.)

Net Operating Losses

Silent

Unlimited carryforward

 

Carryforwards will be increased by interest factor

 

Income that may be offset in any year limited to 90 percent of income

 

Eliminates carryback

Section 199 Gross Production Activities

Silent

Repeal

Business Tax Credits

Largely repeal, but retain the research and development credit and business tax credit for on-site child care

Largely repeal special-interest credits and seductions, but retain the research and development credit

Taxation of International Income

Silent

Territorial system based on consumption

Earnings of Foreign Subsidiaries

One-time 10 percent deemed repatriation tax on cash held abroad that represents earnings of foreign subsidiaries of U.S. companies payable over 10 years

 

Future earnings of foreign subsidiaries of U.S. corporations are taxable as earned

One-time deemed repatriation tax on earnings of foreign subsidiaries of U.S. companies of 8.75 percent to the extent held in cash or cash equivalent and 3.5 percent otherwise, payable over eight years

Dividends from Foreign Subsidiaries

Silent

Excluded from income of U.S. parent

Subpart F Income

Silent

Largely repeal

Gift Tax

Repeal*

Silent

GST

Repeal*

Repeal

Estate Tax

Repeal

Repeal

Step-Up in Basis at Death

Only to extent total appreciation does not exceed $10 million

Silent

*Denotes an item that was part of Trump's original tax plan but not mentioned in his revised tax plan

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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