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Will a new administration bring tax reform? Part1

With all the talk of tax reform, what is likely to come of this in 2017? We’ll look at business tax proposals in this installment and personal tax proposals in the next installment.

For business taxpayers, the Trump plan proposes the following:

  •         Business tax rate decrease from 35% to 15%
  •         Corporate alternative minimum tax to be eliminated
  •         Repatriation of corporate profits held offshore at a one-time tax rate of 10%
  •         Other than the R&D credit, other “corporate tax expenditures” to be eliminated.
  •         Manufacturers could elect to expense capital investments at the cost of losing the deductibility of corporate interest expense.

 

The other Republican plan, “A Better Way”, proposes the following:

  •         Creating a business rate for small businesses instead of taxing them at individual rates
  •         Reducing the corporate tax rate to 20%
  •         Providing for immediate expensing of the cost of business investments
  •         Allowing interest expense to be deducted only against interest income (similar to the current investment interest rules for individuals)
  •         Eliminating net operating loss (NOL) carrybacks, but allowing NOL’s to be carried forward indefinitely
  •         Retaining the R&D credit
  •         Eliminating certain unspecified special interest deductions and credits

 

There are a number of similarities between these plans. First, both call for substantial cuts in the tax rates on business income, whether corporate or non-corporate. Second, expensing of business investments. Third, limitations on the deductibility of interest expense. Fourth, some attempt to reduce the tax burden on off-shore corporate earnings currently untaxed in the United States. Lastly, elimination of some “special interest” deductions and credits.

 

Although there is a good amount of overlap between both proposals, it’s difficult to say what may happen next year. But with all parties interested in pushing tax reform, the areas of agreement above would logically seem to be the ones most likely to be moved forward.