The Trump Administration had released its outline for the corporation and individual tax reforms. Here is the summary of key points included in the outline.
- 15% Corporate Tax Rate – also applied to “pass-through” income. The corporate income tax rate would be lowered from 35% to 15%. The reduced tax rate would also apply to “pass-through income” (income from S-corporations and partnerships).
- “Territorial” International Tax System. The US government would no longer tax income on a world-wide basis; instead, the US tax system will be shifted to a “territorial” system. However, there would be a one-time tax on all “offshore” income that has not been repatriated.
- Lower Individual Income Tax Rate. The current seven individual income tax brackets are consolidated into three brackets – 35%, 25% and 10%. The top bracket is reduced from the current 39.6% to 35%.
- Changes to Individual Itemized Deductions. The two most significant proposals would be a doubling of the standard deduction and the revocation of state and local tax deduction. All individual deductions except for the deduction for mortgage interest and charitable contributions would be eliminated.
- Estate Tax, Alternative Minimum Tax, and “ObamaCare Surcharge” Repeal. The plan eliminates the estate tax, the alternative minimum tax (AMT), and the 3.8% additional net investment tax added under the Affordable Care Act.
The tax reform for individuals and businesses is being driven by two proposals: one made by President Trump during the campaign last year and one set out by the House GOP (known as the GOP blueprint). In many areas, the two find common ground, including consolidation and a reduction in the income tax rates for individuals, a cut in the corporate tax rate, elimination of the federal estate tax, and abolishment of the alternative minimum tax (AMT). President Trump has also called for new tax incentives for child and elder care.
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