July 14, 2016

House Republicans Tax Reform Proposal

Provisions for Individuals, Businesses, and IRS Reforms

On June 24, House Republicans released their latest tax reform proposal, “A Better Way—Our Vision for a Confident America.” Earlier in the year, Tax Reform Tax Force, led by Ways and Means Committee Chairman, Kevin Brady (TX-R), was given the responsibility to deliver a “strategy to create jobs, grow the economy, and raise wages by reducing rates, removing special interest carve-outs, and making our broken tax code simpler and fairer.”

Here are the highlights.

The blue print suggests several IRS reforms including:

  • Restructuring the agency focused on three major units:
    • Families and individuals,
    • Business, and
    • The creation of a “small claims court independent of IRS. This is designed to resolve routine disputes more quickly.
  • Changing IRS leadership so that it is headed by an Administrator, appointed by the President with the consent of the Senate for a three-year term
  • Establishing a mission of “Service First”
  • Remaining committed to assisting taxpayers

For individuals and families, the blue print would:

  • “Simplify, flatten and lower tax rates for families and individuals,” reducing top tax rates to 33 percent and number of brackets to three
  • Reduced progressive tax rates on capital gains, dividends, and interest income
  • Eliminate the alternative minimum tax
  • Merge existing family tax benefits into a larger standard deduction including larger child and dependent tax credit
  • Simplify higher education tax benefits
  • Maintain the earned income tax credit (EITC) as well as current tax incentives for retirement savings
  • Current provisions that would be eliminated include alternative minimum tax, (AMT) itemized deductions, excluding mortgage interest deduction and charitable contribution deduction as well as estate and generation-skipping transfer taxes

For businesses, the proposal includes:

  • Creation of a new business rate for small businesses organized as sole proprietorships or pass-through entities
  • Reducing the corporate tax rate to 20 percent
  • Providing for immediate expensing of the cost of business investments
  • Interest expense deducted against interest income, with net interest expense carried forward as a deduction against net interest income in future years
  • Net operating losses (NOLs) to be carried forward indefinitely, increased by an interest factor, and eliminating NOL carrybacks
  • Retaining the research credit
  • Eliminating unspecified special interest deductions and credits
  • Shifting to a territorial tax system and a consumption-based tax approach
  • Providing a 100 percent exemption for dividends from foreign subsidiaries
  • Simplifying international tax rules

These proposals will be debated in the 2017 session. Maddox Thomson will monitor the proposal’s progress and keep our clients apprised. As always, our team is here to answer any questions you may have. Do not hesitate to call or email us today.