House Ways and Means Committee Chairman Kevin Brady (R-Texas) today issued the House Republicans’ proposal for tax reform, which includes substantial simplification of rates and brackets, as well as major reforms to the Internal Revenue Service. Under the plan, individual tax brackets would be consolidated to three at 12 percent, 25 percent and 33 percent, with a 50 percent exclusion for investment income. The estate tax and alternative minimum tax would be repealed, as would all deductions except those for mortgage interest and charitable giving. Profits of pass-through entities such as Subchapter S corporations would be taxed at a 25 percent rate.
Meanwhile, businesses would face a top corporate tax rate of 20 percent. They would be allowed immediate expensing of investments in tangible and intangible assets. Generally speaking, interest expense would be deductible only against interest income; however, Brady said the Ways and Means Committee would develop special rules around interest expense for banks and other financial firms that take into account their unique role as financial intermediaries. All credits and special deductions would be eliminated except for certain research and development spending.
The tax plan would replace current global taxation of U.S. companies’ profits with a territorial system to improve U.S. tax competitiveness, reducing incentives for corporate inversions. ABA will continue to monitor the tax proposal and work with the committee as legislation moves through Congress. Read more. For more information, contact ABA’s John Kinsella.