On Wednesday (9.27.2017), President Trump and a group of “Big Six” Republican tax negotiators unveiled what was  described as a “framework” for overhauling the U.S. tax code. The framework includes tax cuts for individuals and businesses. It also repeals or drops several deductions and controversial tax provisions. The new plan doesn’t explain how the tax cuts will be paid for and who exactly will benefit. 

Provisions of the “Unified Framework for Fixing our Nation’s Broken Tax Code”

Corporate tax rates | To bring the U.S. corporate tax rate in line with other industrialized nations, the plan would drop the current 35% corporate tax rate to  20%.

Pass-through businesses | Unlike the current tax approach where those who own a business are taxed as individuals on the profits of the business, the framework recommends an across-the-board 25% rate for so-called “pass-through” businesses. This will likely be a contentious issue as over 90% of small entities are services business and reports by the Wall Street Journal and others indicate that services companies won’t qualify for the 25% pass through rate.  (Stay tuned.)

Individual tax rates | The plan replaces the current graduated seven-rate structure with a three-bracket system of 12%, 25% and 35%. Currently, the lowest rate is 10% and the top tax rate is 39.6%.

Standard deduction | The plan would nearly double – but not quite – the current standard deduction of $6,350 for single filers to $12,000 and the $12,700 standard deduction for joint filers from $12,700 to $24,000. This standard deduction would be claimed by more taxpayers in conjunction with other changes.

Itemized deductions | The new plan eliminates most itemized deductions, but retains the “sacred cows” of write-offs for mortgage interest and charitable donations.

Alternative minimum tax: The plan would repeal the AMT so taxpayers would only have to deal with one tax return.

Estate (or “death”) tax | Currently, the estate tax includes a $5.49 million exemption.

Family tax breaks | The plan would consolidate existing tax breaks for families, including a child tax credit from $1,000 to an unspecified amount and creation of a new $500 tax credit for dependents, such as the elderly.

Round up of trade group statements in support of tax reform

National Federation of Independent Business (NFIB)

“We are grateful to the President and congressional leaders for remaining steadfast on tax reform. We are pleased to see that the initial plan calls for reducing taxes on pass-through companies, which represent the overwhelming majority of American small businesses. This is the beginning of a long process, and we look forward to more details. NFIB will remain engaged to ensure that tax reform starts with small business. Small businesses need meaningful reform that lowers their tax bill, allows them to invest in their business, create jobs, and grow the economy.”

(Full statement)

U.S. Chamber Of Commerce

“The engagement and enthusiasm for pro-growth tax reform from Trump administration officials and congressional lawmakers are what will propel this (legislation) over the finish line. (We applaud) the work that has been done to narrow the differences and we look forward to continuing to engage policymakers on this critical issue.”

National Association of Manufacturers 

“Today is a great day for those who believe America’s best days are still ahead. This tax reform framework is the type of bold action manufacturers have been calling for because it will spur economic growth for all Americans. The United States needs to continue to be the most attractive place to invest and start a business, and this initial proposal is a positive step in that direction.”

(Full statement)

Small Business & Entrepreneurship Council

“The unified framework released by GOP leaders and tax writers today is a solid starting point for tax reform. The plan lowers rates for small businesses, simplifies the tax system and encourages investment and capital formation. These are the necessary pieces for producing a healthy ecosystem that will enable American entrepreneurs and small businesses to succeed…. It is a bold package that will produce big growth for the U.S. economy.”

(Full statement)

National Retail Federation

“We look forward to hearing more details but this is a very positive step forward to achieving the kind of comprehensive tax reform that is needed to keep our nation’s economy competitive in the global environment. This plan would provide much-needed relief for corporations, small businesses and middle-class individuals alike, and would help draw foreign capital and investment to the United States. This is the framework we need to unlock job creation and economic growth. As an industry that pays at or close to the full 35 percent federal corporate tax rate, our focus is on eliminating tax breaks that benefit only a few industries and using the money saved to lower rates for all businesses. If you get the rate low enough, that would benefit everyone equally and fairly without the need for special treatment that favors one sector of the economy over another.

As an industry that pays at or close to the full 35 percent federal corporate tax rate, our focus is on eliminating tax breaks that benefit only a few industries and using the money saved to lower rates for all businesses.

National Retail Federation

Economic studies show that this type of reform will increase investment in the United States, increase wages and help our customers. That is our No. 1 goal, and it has been for years. Retailers are affected by both the business and individual sides of tax reform. The relief provided to corporations and small business ‘pass-throughs’ in this plan would help ease retailers’ tax burden and free up capital for investment, job growth, higher wages and innovation. But just as importantly, the middle-class relief provided here means consumers would have more money in their pockets when they come into our stores, and that would mean a boost for the consumer spending that drives both retail sales and two-thirds of our nation’s economy.”

(Full statement)

Associated Builders and Contractors (ABC)

“The tax framework released today marks a promising step forward for the first genuine reform of the tax code in a generation. ABC is encouraged by the proposal, and we strongly support the tax reform process moving forward. The framework and its targets go a long way toward advancing ABC’s tax policy goals. Construction historically faces the highest effective tax burden of any industry. The vast majority of construction firms are small and family-owned businesses that pay taxes at individual rates. The equivalent rate reduction envisioned in the framework for businesses on both sides of the code, paired with a broader tax base, moves toward ABC’s vision of fair treatment for all companies regardless of size, structure or sector. We look forward to working with both chambers to build on the structure of this framework in a way that promotes simplicity, fairness and economic growth.”

(Full statement)