Speaker Ryan and House Republicans roll out a version of a 21st Century Tax System

On June 24th, Ways and Committee Chairman Brady released a blueprint for tax reform labeled as “A Better Way for Tax Reform.” The agenda is a result of a committee formed to study and develop policy recommendations under Speaker Ryan’s direction to create new jobs, grow the economy, raise wages by reducing tax rates, and to make the code simpler and fairer.

The result is a blueprint of the current House’s view of tax reform. The intent of the blueprint is to be ready for legislative action in 2017. Key provisions of the reform blueprint include:

KEY CORPORATE PROVISIONS:

  • A 20% corporate tax rate.
  • A 25% business income pass-through rate (for S Corporations and Partnerships).
  • A territorial system of tax that exempts from U.S. tax earnings made abroad. The exemption is achieved by exempting from tax any dividends received from foreign subsidiaries. Any accumulated foreign earnings at the date of enactment are taxed at either 8.75% or 3.5% depending on the nature of the earnings.
  • 100% expensing of asset acquisitions.

KEY INDIVIDUAL PROVISIONS:

  • Individual rates would be reduced to three brackets – 0%-12%, 25%, and 33%.
  • Individual deductions would be eliminated except for mortgage interest and charitable contributions. The standard deduction would be increased.
  • The AMT and Estate tax would be repealed.

No one can say for sure if the end result could be revenue neutral. Many questions remain as to any final outlook, especially in light of the current volatile political climate. What the document does offer is glimpse of what potential reform could look like in an environment where reform has been gathering momentum. On point is the recent interview given by Tim Cooke, the CEO of Apple, to the Washington Post. Mr. Cook argues for a free flow of capital by taxing earnings currently with no deferral, thus allowing the flow of overseas earnings to come back to the US without any further tax.

Luis Ramirez