Politics

Republicans Unveil Their Framework for Tax Reform

taxes tax reformRepublican leadership took a major step in its goal to reform the tax code Wednesday by releasing a framework which details what the final bill may look like.

Republicans have worked for nearly two years in their most recent push to fundamentally reform the tax code. Their focus on rate reductions and simplification have remained a pivotal part of their plan throughout the process. President Donald Trump is scheduled to discuss the new framework later in Indianapolis, Indiana.

“Today, we move one step closer to fixing our broken tax code so that it puts Americans first,” House Speaker Paul Ryan said in a statement. “This is our best opportunity in a generation to deliver real middle-class tax relief, create jobs here at home, and fuel unprecedented economic growth.”

The tax reform framework reduces the seven current income brackets down to three. The top individual tax rate at 39.6 percent will be reduced to 35 percent. The framework also taxes middle-income earners at 25 percent, and lower-income earners at a slightly higher rate of 12 percent. It does leave room for lawmakers to add an additional top rate for high earners.

Republicans hope to boost economic growth through tax reform. The framework reduces rates for corporations down to 20 percent. The top rate for corporations is currently at 35 percent, which is one of the highest rates in the world. This high rate has led companies to keep more of their profits overseas or move their corporate headquarters abroad.

The GOP tax plan also limits the rate paid by small and family-owned businesses to 25 percent. The new rate limit is lower than the top rate that these businesses currently pay. These earnings are typically taxed as pass-through income to the owners.

Republicans hope to simplify the tax code by eliminating tax breaks that primarily benefit the wealthy. The framework also repeals the alternative minimum tax and the death tax. Homeownership and charitable gift tax deductions will be protected under the plan.

Trump has focused much of his agenda of keeping jobs from going overseas. The tax framework reflects that push by including a one-time tax on businesses keeping offshore profits. It also switches to a territorial tax system which is designed to benefit companies that keep operations within the country.

The tax system hasn’t been reformed in a comprehensive way since 1986. The Congressional Budget Office (CBO) found in an analysis that many other developed countries have been moving towards a more competitive tax system in the decades since.

“It has been 31 years since we last got this done, and hardworking families and small businesses cannot afford to wait any longer,” Ryan said. “Under President Trump’s leadership, we are determined to finally give the American people the simpler, fairer, and more competitive tax system they deserve.”

The tax reform framework comes after nearly a year of hearings and internal discussions that built upon previous policy drafts. House Speaker Paul Ryan and Rep. Kevin Brady introduced a blueprint last year which outlined their earlier policy goals. Trump later released a summary plan which included many of the same provisions April 26.

Republican leadership spent the last week ensuring party members had the chance to hammer out any last minute details. Republicans held a two-day private retreat so that they could hash out the details openly. The approach may help them avoid problems that caused their healthcare reform efforts to falter.

The National Taxpayers Union Foundation found in a 2015 study that the economy loses $233.8 billion and 6.1 billion hours of lost productivity annually because of the complex tax code. The Government Accountability Office found in a 2014 study that the tax code is so complex that very few professional tax preparers are able to calculate the correct tax refund.

The budget is also likely to play a pivotal role in getting tax reform passed. Republicans will only need a simple majority if they include tax reform as part of the reconciliation process. Republicans have to first pass a budget that includes provisions for tax reform for it to be included in that process. Democrats as a whole aren’t likely to support the eventual tax reform bill making party unity and a simple majority vote a necessity.

from - InsideSources.com - by Connor D. Wolf

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wesley
4 years ago

A problem with the flat tax proposition is in the application of deductions. The tax should be levied as a percentage of income, and deductions on a per person basis. At a 10% tax rate a family of 4 making $ 40,000 would be levied $ 4,000 in tax . A family of 4 making 100,000 would be levied $10,000 . A deduction of $ 1,000 per dependent person would result in the family of 4, making $ 40,000, having $4,000 in deductions and $ 4,000 in taxes pay $ 0 in tax. The family of 4 making $ 100,000 would be levied $ 10,000 in taxes, have $ 4,000 in deductions, and pay $6,000 in taxes. The tax percentage and deduction amount could be adjusted to provide the government funding needed, directed at the income level that congress wants to target. The most popular selling point for this approach would be valuing each person at the same dollar value, as the Marxist Democrat Party always tout. And the percent of tax could be easily lowered as the government needs less money ( Ha-Ha).

Itasara
4 years ago

I think we need to try something or else nothing is going to change. It would be great to know if this tax proposal should pass, it will be open for changes if need be as long as it doesn’t take forever to get those changes made. It’s what worries me! Someone needs to be alert and watch and see what we need to do to fix any problems. But we can’t wait forever to not pass something and leave things as they are.

BruceM
4 years ago

Because many retirees rely on dividends and capital gains, how might these be affected by a tax overhaul?
The House plan is to take all investment income in taxable accounts, add it up, divide it by two and multiply this by either 12% or 25%, depending on the tax bracket its in. At first glance, this may seem like a tax increase, as the current qualified dividend and long term capital gain that occurs in the 15% bracket is taxed at the 0% rate. However, for those with such investment income in the 25% bracket will have it taxed 12.5% instead of 15%, while non-qualified dividends such as REIT dividends or bond interest, the rate will be cut by 50% from 25% to 12.5%.

Higher income retirement households may benefit from repealing the NIIT, or Net Investment Income Tax, that adds another 3.8% tax to investment income when the Adjusted Gross Income exceeds $250,000 for those married filing jointly.

Large Estates >about $11Million will benefit from the repeal of the estate tax, although I’m not sure this is a very good idea, as concentrating family wealth has never been a good idea.

Repealing Alternative Minimum Tax will benefit those with a moderately high household AGI of $200,000 to $400,000 with a lot of deductions.

With the proposed loss of all but mortgage interest and charitable contribution deductions, those who live in high income tax states, high property tax states or who have gobs of medical expenses, will be the hardest hit.

But at this point, this is all just talk. The final outcome, assuming there is a change, generally looks nothing like the initial proposals

Darlene
4 years ago

The Democrats/Progressive and RINOs don’t want Trump to succeed — it would be an embarrassment if Trump shows them up by getting something done; also, they don’t like our agenda.

Tom N.
4 years ago

What about deductions for medical expenses? Ours total 10,000.00/year. It was stated that there will only be 2 deductions – home mortgage and charitable. We give plenty to charity but at this age we have no more mortgage. We need medical deductions with the huge Obamacare deductibles we must pay for my wife (age 61). Since no one is doing anything about Obamacare (8 years for the Republicans-nothing!) what is to be done?

Patricia H. Elis
4 years ago

I’m all for tax reform. Our tax code is far too complicated. I prepared tax returns for a major company years ago and always did my own, but finally had to turn it over to someone else as I could no longer keep up with all the changes that showed up each year.

fred
4 years ago

Tax cuts only good as far they do not increase the defificit so make sure we are getting closer to a balanced budget only!!

Nancy
4 years ago

I would prefer to retain the medical deduction rather than the MTG deduction but then the realtors have K street lobbyists, the chronically ill are on their own…

Larry
4 years ago

Why no mention of the tax brackets? are they going to be changed?

Carmillia
4 years ago

Tax reform must take into consideration the elderly and poor

David
4 years ago

They are basically pissing away time and money on a system that was created by them. They always say we are going to reform the tax system and just make it worse. A certain percentage of wages as taxes should be decided on and that will be the rate for everyone. That is the way it should have been done all these years but when you can go in and stick some deduction in that wl=ill help certain people while it hurts others you are just looking for trouble.

Vernon
4 years ago

Love the tax reform. Would like to add that bill Clinton,s tax on social security should be repealed. We have already paid taxes on it while working. Double taxation isn’t
fair to those of us whom have paid into the system for years. The ss is for those who put money into the system and not for those whom did not. Such as free loaders
Muslims, illegals, etc. They are costing us tax payers BILLIONS of dollars.

Ed Kowalski
4 years ago

A better approach would be a national sales tax or fair tax based on what you buy / spend not on what you earn. That way money that was obtained illegally I.e. theft, drugs, prostitution, off-the-books etc would be taxed as spent.

Mike
4 years ago

While the general idea of tax reform is a plus, especially that of removing the unlawful “death tax” which is theft as it is double taxation, why have the republicans spent more time fighting President Trump than they have solving problems? It is clear that the gop establishment hates President Trump as much as the dnc, so why should we trust the gop at all? I for one no longer consider myself a republican but an independent. I also believe the evidence is clear that both parties are totally corrupt running what amounts to an organized crime syndicate for which they should be arrested under RICO statutes.

Peter K
4 years ago

How anyone can say with a degree of certainty that the “Proposed” new tax code is good for the USA is beyond me. Simply lowering the corporate tax rate provides no assurance the corporations will add jobs, re-invest the windfall in the USA or any other economy stimulating action. If one trusts corporate America, the same people that ship millions of jobs overseas without regard for the consequences to OUR Country, I worry about their sanity.

Any reduction in corporate tax rates should be accompanied by a reinvestment hook.

As far as individuals are concerned, a very large minority pay no federal income tax now, so what is the big deal? A flat tax, paying into SS without a ceiling, and eliminating loopholes seems to be a much simpler solution.

Of course, that’s just my opinion and I may be way off base.

Scottar
4 years ago
Reply to  Peter K

Well Peter, under the current tax system large corporations can afford to locate their operations and manufacturing off shore while smaller corporations can’t. So the current system is favored by large corporations as it stifles their competition.

Corporations also locate off shore to escape draconian regulations. And studies have shown many corporations would rather locate in a more stable environment such as in the US.

Thomas
4 years ago

To make senators and rep. Unhappy simplify taxes ,tax breaks is why they get most of their campaign
Contributions , a variable 10 to 20 % tax rate on all real income and a 5000 to 10000 tax refund for all working citizens over 18. And elimination of all breaks assistance and aid for able bodied people , The refund can be based on reduction in national debt.bigger reduction larger refund.

Jim
4 years ago

Why aren’t they talking about the Fairtax? Pence was a co sponsor for years. They just can’t bring themselves to be transparent and stop spending us into the poorhouse. Damn them!

Angela
4 years ago

Not only are they getting rid of what is needed to reduce tax, take away exemptions and put in 3 tax rates that WILL put you in a higher tax rate, but now they have included in things to take away from us to reduce tax is education credits! A few others for starters. Where or if they stop?
This just keeps getting worse!!!
Why is everyone so excited about this?
Well government because they can steal even more of our money, and taxpayers because they have NO CLUE what the tax plan will in reality do to them!!
Time to find out people!!!

Rick
4 years ago

The increase of the low bracket to 12% is not “slightly higher”, but instead a huge stumbling block in the path to tax reform. It will never fly this way.

betty
4 years ago

What they are failing to tell you is what I’ve read recently. Those who normally have been in the 28% tax bracket are going to be pushed up to the 35% tax bracket, taxed as much as people with income 3 times as much as yours. And, these are retirees living on IRA income. On top of that, there will be no deductions for out of pocket medical expenses, and no deductible for the excessive state and local taxes we pay. So, double taxation. On top of this, did you know that “tax free” muni income is not tax free when it comes to Social Security. They count it as AGI and can and will reduce your monthly payments and increase your Part D payments regardless whether you use much, if any, prescriptions.

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