Media Attention Focused On New Tax Proposal

Much of the media attention this week is focused on the next bitter political battle, the administration’s new tax proposal. Bloomberg says the framework now being released proposes cutting the top individual rate modestly to 35%, but leaves it up to Congress to decide whether to create a higher bracket for those at the top of the income scale.The rate on corporations would be set at 20%, down from the current 35%, and businesses would be allowed to immediately write off their capital spending for at least five years, Bloomberg said. Pass-through businesses would have their tax rate capped at 25%.The plan is expected to contain three tax brackets for individuals, 12%, 25% and 35%, down from the existing seven rates, which top out at 39.6%. The unusual feature of this outline is that the administration understands from the outset that the details are not firmly set and congressional tax-writing committees are specifically given flexibility to add a fourth rate for the highest earners in an effort to prevent the overhaul from providing too much of a benefit for the wealthy.Congress members haven’t signaled that they’ll take that option, Bloomberg says. Key Republicans on the tax-writing Ways and Means Committee, including Chairman Kevin Brady, R-Texas, say they’re committed to offering across-the-board tax relief. By contrast, the President has repeatedly said he’s focusing on middle-class individuals.At the same time, the plan calls for repealing the alternative minimum tax and the estate tax, both of which would be a boon for higher earners and the wealthy.On the international side, the plan would move toward ending the unique worldwide approach the U.S. uses to tax corporate profits regardless of where they are earned and would focus primarily on multinationals’ domestic earnings.Companies with accumulated offshore profits would be subject to a one-time tax on those earnings, clearing the way for that income to return to the U.S., Bloomberg says. The rate that would be applied is unclear, but it would vary depending on whether the income was held in cash or less liquid investments. Firms would be able to pay the new tax over several years.In terms of middle-class benefits, the framework outlines a near doubling of the standard deduction to $12,000 for individuals and $24,000 for married couples, and calls for “significantly increasing” the child tax credit from the current $1,000 per child under 17.There is obviously a great deal of detail still to be revealed regarding the plan, Bloomberg says. For example, it still lacks extensive details about ways to offset its rate cuts with additional revenue. It says most itemized deductions for individuals should be eliminated, without providing specifics, at the same time it calls for mortgage interest and charitable giving deductions to be preserved.