The Trump administration’s framework for US tax reform | KPMG | AU

The Trump administration’s framework for US tax reform

The Trump administration’s framework for US tax reform

Liam Delahunty and Shirley Lam discuss the Trump administration's proposed new tax reform package.

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United States buildings

On 27 September 2017, the Trump administration and the tax writing committees in the United States released their Unified Framework For Fixing Our Broken Tax Code (the Framework). The latest in a series of proposals promulgated by various parties, the Framework for tax reform is underpinned by four principles: making the tax code fair and simple, providing middle-class workers with tax cuts, creating more jobs by cutting the tax rate for businesses, and bringing funds kept offshore back to the United States.

While the precise measures are to be drafted, key changes proposed in the Framework include:

  • Reducing the corporate tax rate to 20 percent and allowing businesses to write off depreciating assets over 5 years.
  • Moving to a territorial tax system and treating existing foreign earnings overseas under the current system as having been repatriated. Future offshore profits repatriated to the United States will be exempted from United States tax.
  • Consolidating the seven individual tax brackets to three tax brackets of 12 percent, 25 percent and 35 percent. The Framework leaves open that an additional top rate of tax may apply to high-income earners.
  • Doubling the standard deduction to $24,000 for married taxpayers filing jointly and $12,000 for single taxpayer filers, effectively creating a larger zero tax bracket.

Notwithstanding the Framework provides cuts to the headline tax rates above, state taxes will continue to apply to individuals and businesses.

The next step is for the administration to prepare budget resolutions for reconciliation. Some economists estimate that the cost of the proposed package will total more than US$5 trillion.

A critical hurdle is that any forthcoming tax bill will be subject to approval by Congress. Recent history suggests this may well prove challenging.

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