The Trump Administration is expected to announce its tax reform plan during a 1:30 PM press conference at the White House today. The Administration is boasting that the tax plan will be “the biggest tax cut and the largest tax reform in the history of our country.” We will be covering the press conference, so stay tuned for our summary and analysis of what is proposed. In the meantime, here are our predictions for what we may see:
- Corporate tax rate reduced to 15%
- Pass-through business income also taxed at 15%
- Repeal the corporate AMT
- Deemed repatriation of accumulated offshore earnings taxed at 10%
- No destination-based cash flow tax
- Shift toward territoriality?
News outlets this morning also reported that today’s proposal will move to a territorial regime, ending the taxation of offshore earnings. President Trump’s campaign tax reform proposal took the opposite approach – calling for the continuation of taxation of offshore earnings without the deferral of active earnings that exists under current law. (The House Blueprint also called for a shift toward territoriality, but accomplished this shift via the destination-based cash flow tax, which Treasury Secretary Mnuchin said this morning does not work in its current form.)
It is unclear at this point whether the Trump Administration’s plan will include reforms with respect to taxes on individuals, or will instead focus solely on business taxes. If it does include individual reform, we expect the following:
- Top individual tax rate bracket reduced to 33%
- Fewer individual tax rate brackets
- Repeal the individual AMT
- Increase in the standard deduction
- Introduction of a child care tax credit
Notably, we do not expect the plan to attempt to meet the deficit-neutral requirements of the budget reconciliation process, eschewing “pay-fors” in favor of building broad support for the plan out of the gate. Presumably these “pay-fors” will be added down the road as the Trump plan is fleshed out into a legislative package. But, unless those “pay-fors” render the plan deficit neutral after the budget horizon, the proposal would need Democratic support in the Senate. We have been told that the administration will be relying on the use of dynamic scoring, assuming that lower rates will drive economic growth, causing tax credits to “pay for themselves.” That said, the Trump Administration has made it clear that the tax plan will be proposed without a pledge to not increase the deficit. Yesterday, the Joint Committee on Taxation reportedly advised Congress that even a 3-year temporary corporate rate cut to 20% would increase the deficit after the 10-year budget horizon.
So, stay tuned. We will keep you updated as details roll in. It’s an interesting day in the tax world!