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1 1 (October 2, 2017)

handle is hein.crs/govcgvw0001 and id is 1 raw text is: The Tax Reform Framework October 2, 2017 The proposed tax reform Unified Framework for Fixing Our Broken Tax Code was released on September 27, 2017. The Framework, agreed to by the majority party leaders of the House and Senate and the chairmen of the Ways and Means Committee and Senate Finance Committee, along with representatives of the Administration, contains many elements of the House tax reform blueprint, the Better Way, released in 2016. The Better Way blueprint is analyzed in CRS Report R44823, The Better Way House Tax Plan: An Economic Analysis, by Jane G. Gravelle. Many of the details of a potential tax reform are not outlined in the Framework, but remain to be determined in the legislative process. ndividd,M Max - ,, For the individual income tax, the plan would broaden the base by disallowing most itemized deductions except for mortgage interest and charitable contributions deductions. It would replace the current seven rate brackets (ranging from 10% to 39.6%) with three brackets, with tax rates of 12%, 25%, and 35% (with the possibility of another higher rate for the highest-income taxpayers). The rate brackets widths are not specified. It would alter some of the elements related to family size and structure by eliminating personal exemptions, allowing a larger standard deduction ($24,000 for joint returns and $12,000 for singles), increasing the child credit by an unspecified amount, and adding a $500 credit for non-child dependents. (The current personal exemption is $4,050 and the current standard deductions are $12,700 for joint returns and $6,350 for single returns.) The current $1,000 child credit would not be altered except through a higher income phase-out range, but only that part of the child credit would be refundable. The alternative minimum tax would be repealed. The current earned income credit is not mentioned. There is no discussion of the tax treatment of capital gains and dividends. Special provisions for education and retirement would be retained but might be modified. The Framework also envisions a measure of inflation that the proposal's sponsors deem more accurate to index rate brackets and other parameters such as the standard deduction. While the Framework does not specify this measure, it likely refers to the chained CPI which adjusts the ordinary consumer price index to recognize the substitution of goods when relative prices change. While many economists believe this measure is a better measure of inflation, using it would have the effect of raising taxes compared to using the regular CPI. Many of these elements (although not changing the inflation measure) were present in the Better Way blueprint, although the blueprint had a top rate of 33%. Bracket widths were specified, along with the increase in the child credit ($500) and treatment of head-of-household returns (heads of households would now use the singles rate schedule and have a standard deduction of $18,000, compared to $9,350 under current law). In the Better Way plan, capital gains, dividends, and interest would be taxed at 50% of ordinary rates; currently, capital gains and dividends are subject to a top rate of 20% and interest is taxed at ordinary rates. T-Zx. $CU.n A e . ....',. ., The Framework would reduce the corporate tax rate from 35% to 20% and provide for a maximum 25% tax rate for small and family-owned businesses that are taxed under the individual income tax as pass-throughs. Pass-throughs are organized as proprietorships, partnerships, or Subchapter S corporations (corporations that have a small number of shareholders and elect to be taxed at individual rates). The language in the Framework suggests that this rate would apply to all income from business, whether labor or capital income. It does not define small business. The Better Way blueprint had the same rate; it applied the 25% rate to all pass-through businesses but only to capital income. The treatment in the Framework is more consistent with the proposals released by the President as a candidate. The Framework provides that investment in equipment (but not structures) that is currently recovered, in part, over a period of years, be expensed (deducted immediately) for at least five years. Deductions for interest for corporations would be partially limited, and interest deductions for pass- throughs would be considered by committees. A much more sweeping change was proposed in the Better Way plan, where both equipment and structures were to be expensed as permanent provisions and interest deductions disallowed. The Framework would repeal the production activity deduction, other unspecified deductions, and most credits, but explicitly retain the research credit and the low-income housing credit. The Better Way plan also had unspecified changes, repealed the production activity deduction, and retained the research credit. Under current law, worldwide income of U.S. multinationals is taxed, but the tax on earnings of foreign subsidiaries is delayed until the income is repatriated (paid as dividends to the U.S. parent). Firms may take a credit against U.S. tax for taxes paid to foreign jurisdictions. U.S. firms have accumulated a large amount of untaxed earnings abroad, including a significant share held in cash and cash- like assets. .O 'T p\w -- , gmmw' goo mppm qq\ a , q 's I 11LULANJILiN,

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