White House Announces Tax Reform Plan

The Trump Administration has announced broad parameters for a tax reform plan that would include lower individual and corporate rates, the elimination of most individual benefits, and a one-time levy on money held abroad by U.S. companies.  While the plan, announced by Treasury Secretary Steven Mnuchin and National Economic Advisor Gary Cohn, lacks specifics, Administration officials say they are open to working with Congress on the details.

Highlights of the Trump plan:

• The number of personal tax income brackets will be reduced from seven to three, and will be capped at 10 percent, 25 percent, and 35 percent.
• All tax deductions other than home mortgage and charitable giving will be eliminated.
• The death tax will be eliminated, as will the Alternative Minimum Tax.
• The corporate tax rate will be reduced from 35 percent to 15 percent.
• There will be a one-time tax levy on money held abroad by American companies.

While this proposal would retain the charitable deduction, it’s assumed all other benefits would be eliminated – including the higher education tax benefits that help students and families save for college, pay tuition, and repay student loans.  For example, benefits such as the tax-favored treatment of Sec. 529 plans, the American Opportunity Tax Credit (AOTC), the Student Loan Interest Deduction (SLID), and others, would be eliminated in exchange for lower tax rates.  It’s not clear what family income level the rate reductions would affect.

If this plan, or one with similar proposals, were signed into law it would represent the largest tax reform measure undertaken in over 30 years.  The Trump Administration, however, is not insisting that Congress rubber-stamp its proposal.  Rather, the Administration is encouraging Congress to use it as a framework for drafting bills in the House and Senate.

The House is likely to move first on announcing their version of a tax bill, particularly since they have successfully completed work on health care reform. The same Congressional committees responsible for health care are also responsible for tax policy.  While the House is likely to propose legislation that closely resembles a tax reform framework like the White House has suggested, the Senate remains a wild card.  

The Senate will now turn to writing its version of health care reform, and this will delay Senate activity on a tax bill.  When the time comes, however, the Senate could propose something that includes tax relief and expands current benefits, rather than a true reform measure.  It would be an arduous process to reconcile the differences in those different types of tax bills, and have something the President could sign in short order.  

Whether a tax bill eventually succeeds, and whether it will be a relief bill or a reform bill, is entirely unknown.  What is certain, however, is this will be a long and likely difficult process.

For more information, please contact:
Karin Johns