Led by Speaker of the House Paul Ryan and Ways and Means Committee Chairman Kevin Brady, the House Republicans just released a tax reform blueprint that will be a key plank on which they will run in November and then seek to pass in 2017. It is highly unlikely that any comprehensive tax reform measure will pass in 2017 regardless which Party wins the White House and controls the Senate or the House. However, the tax reform plan released by the House Republicans demonstrates their commitment to a simplified, pro-growth tax system. Those lobbying the House on tax matters must keep the blueprint in mind in calibrating their
The principal feature of the blueprint is a deep cut in the top corporate tax rate from 35 percent to 20 percent. To arrive at that goal, the plan specifically would eliminate the deductibility of corporate interest and would repeal most other corporate tax expenditures but without singling them out. Supporters of the tax expenditures on which the blueprint is silent would be wise in the coming months to pound the halls of House lawmakers to make the case for their retention in a reformed tax code.
As for individuals, the plan calls for reducing the number of individual tax brackets to three from seven, with rates set at 33 percent, 25 percent and 12 percent, compared to the current range of 10 percent to 39.6 percent. It would offer a substantial cut on capital gains and dividends, a provision aimed at rewarding savings that are invested. They’d be taxed at 16.5 percent, 12.5 percent or 6 percent, depending on how much the investor earned. The top rate is currently 23.8 percent. The plan would dramatically expand the standard deduction as well as the child tax credit by consolidating various exemptions and credits. That would drastically cut the number of people who itemize their deductions, to about 5 percent, Republicans estimate, from the current one-third. Though the plan does not say how they intend to change the mortgage and charitable deductions, it says tax writers are looking for ways to make them “more effective and efficient.”
With regard to multinational companies, the plan would move to a so-called territorial system, where the government would not attempt to tax companies’ overseas profits. The plan would apply a one-time 8.75 percent tax on money that is already overseas in liquid assets, with a 3.5 percent tax on money invested abroad in things like factories. As we analyze the House tax reform blueprint further, we will provide additional reports in the coming weeks.