The “pro-growth” plan will create a fairer and flatter tax code and help jumpstart a new era of prosperity, according to House Ways & Means Committee Chairman Kevin Brady (R-TX).
Unveiled by Speaker of the House Paul Ryan (R-WI) as part of his “Better Way” agenda, the proposal represents the first major attempt at comprehensive tax reform since former House Ways & Means Chairman Dave Camp introduced a proposal at the end of the Congressional session in 2014. While that bill was not taken up by the next Congress, Speaker’s Ryan’s proposal is expected to serve as the blueprint for House consideration of tax reform in 2017.
With regard to business taxation, the blueprint calls for a reduction of the corporate tax rate from the current rate of 35 percent to 20 percent, and taxation of pass-through income at 25 percent. Such income is currently taxed as personal income, often at the top personal rate of 39.6 percent.
The plan’s authors declined to include a business equivalency rate that would tax pass-through income at the same level as the corporate rate, a concept that has been advocated by FEI’s Committee on Private Company Policy in recent months. Republican leaders maintain pass-through entities will see additional savings in other parts of their plan that will compensate for the rate difference with corporate taxpayers and allow them to remain competitive.
The blueprint’s authors say the plan is revenue neutral, but did not provide details on how the rate reductions will be paid for, maintaining that those details will be worked out as tax reform is debated in the Ways & Means Committee following the November elections.
The plan would eliminate the estate tax and allow for the immediate and full deduction of capital investments. With regard to foreign earnings, the plan would establish a territorial tax system with regard to foreign earnings, taxing U.S. companies based on the location where their products are sold.
On the individual side, the plan calls for reduction of tax brackets from the current seven to only three, reducing the top individual tax rate from 39.6 percent to 33 percent. The blueprint also proposes to eliminate itemized deductions and increase the standard deduction and child tax credit. Net capital gains, interest and dividend income would be allowed a 50 percent deduction and the alternative minimum tax would be eliminated under the Republican plan.
Speaker Ryan has indicated the Ways & Means Committee will begin consideration of tax reform following the November elections, with the goal of bringing the plan to a vote by the end of 2017. FEI will work actively to represent our members’ interests during this process.
Details of the blueprint can be found here.