The draft legislative text released today comes in at over 400 pages, and will take some time to analyze. In the meantime, the table below summarizes key features of the bill. In addition, a section-by-section summary prepared by the House Ways and Means Committee is available here. We have also released an updated version of our Tax Bill Navigator, a hyperlinked version of the bill built to ease your navigation of its text, which you can find here.
As expected, the bill calls for an immediate and permanent reduction in the corporate tax rate to 20%. The bill significantly limits the deductibility of interest expense for certain businesses, introducing a cap equal to 30% of earnings before taxes, depreciation and amortization, and limits other deductions but provides for immediate expensing of depreciable assets on a temporary basis. As promised, the bill provides for a special 25% tax rate on pass-through income but contains many limitations on eligibility, including a presumption that 70% of such income is attributable to wages. Income produced by law and financial services firms is presumed to be 100% wages, and thus potentially ineligible for the special 25% tax rate. Unexpectedly, the bill expands the current limitations on deductibility for remuneration of highly-compensated employees of public corporations and makes other changes to deferred compensation rules.
On the international side, the bill contemplates major changes: a shift, at least in part, towards a modified territorial system, coupled with current tax on certain high-return offshore earnings (calculated on a global basis) and special base erosion provisions designed to limit the ability of multinationals to reduce the taxable income of their U.S. groups. Changes not previously expected include an expansion of the attribution rule for controlled foreign corporations and limitations on the active insurance company exceptions to the passive foreign investment company rules. As predicted, the bill calls for a mandatory one-time deemed repatriation of previously untaxed offshore earnings at two rates: 12% for earnings held in cash or cash equivalents and 5% on the remainder.
For individuals, the bill condenses current tax brackets, retaining a top rate of 39.6% (on income above $500,000 for individuals and $1,000,000 for joint filers). The bill nearly doubles the standard deduction to $12,200 ($24,400 for joint filers) but eliminates personal exemptions. As expected, the bill repeals the individual deduction for state and local income taxes, but continues to permit a limited deduction for state and local property taxes, capped at $10,000. Unexpectedly, the bill limits the deductibility of interest on home mortgages to amounts attributable to the first $500,000 of indebtedness. The precise effects of these changes on individual taxpayers will depend on their circumstances. The bill makes no changes to current law preferences for retirement savings.