By Jon Taets
WASHINGTON – Yesterday, the so-called “Big Six,” as in Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Majority Leader Mitch McConnell (R-KY), House Speaker Paul Ryan (R-WY), House Ways and Means Chairman Kevin Brady (R-TX), and Senate Finance Committee Chairman Orrin Hatch (R-UT), released what they are calling their Unified Framework for Fixing Our Broken Tax Code.
The outline represents an agreement on principals for tax reform legislation between the House, Senate, and the White House. President Trump also followed the release of the outline with a speech on the tax proposal in Indiana later that afternoon.
As expected, the outline is lacking in granular detail but lays out the top line goals of the administration and congressional republicans. The proposal would reduce the current seven tax brackets down to just three. The highest tax bracket would drop from 39.5% to 35%, with the two other brackets being 12% and 25%. A lowest rate of 12% would actually be an increase from the current lowest rate of 10%; however, the proposal would also roughly double the standard deduction available to tax filers. With that and increased child tax credits and “additional tax relief,” the proposal indicates that typical families using the 10% bracket would find themselves better off under this plan. It also leaves open the possibility of an additional top tax rate.
On the business side of the proposal, the GOP leaders seek to lower the corporate tax rate from 35% down to 20%. Of importance to many in the convenience retailing industry, the proposal includes a new “small business” rate that would cover most s-corps of 25%. It also references, but does include specifics, measures to prevent wealthy individuals from recharacterizing personal income as business income to tax advantage of that rate. NACS has argued for lower small business rates and for parity between c-corps and s-corp treatment.
Additional proposals for businesses are:
- Increased expensing of capital investments (other than structures)
- Partially limiting the net interest expense deduction for c-corps
- Elimination of the domestic production (section 199) deduction as well as the elimination of numerous other exclusions
- Elimination of the corporate Alternative Minimum Tax
- Additional proposals for individuals are:
- Elimination of the Alternative Minimum Tax
- Repeal of the estate tax and generation-skipping transfer tax
- Elimination of most itemized deductions, but maintains the mortgage interest and charitable contribution deductions
What is notably absent from the outline is detail about how much of the reductions in rates will be paid for. Under congressional rules expected to be used to pass tax reform, lawmakers must ensure that the proposals do not create deficits beyond the current 10-year budget window. If they cannot or chose not to structure reform in that manner, they will likely have to make the changes sunset after 10-years—like the 2001 and 2003 tax cuts that were set to expire a number of years ago.
It is all but confirmed that the biggest proposed “pay-for” from the House GOP blueprint released earlier this year, the Border Adjustment Tax, is off the table. This means that they may need find over a trillion dollars in other funds to make up that difference. Unfortunately, that has put many items often used by members of our industry, such as the LIFO accounting method, back in the crosshairs.
It will still be a while before we see actual legislation as the relevant committees get to work on filling in the details of this outline. NACS GR staff will work with congressional tax writers as they draft the legislation.
The full framework can be found here, and a one-page overview can be found here.
Jon Taets is NACS director of government relations. He can be reached at jtaets@convenience.org or (703) 518-4224.