House Republicans today released their "blueprint" for tax reform. The blueprint proposes to reduce tax rates for businesses and for individuals and to move the U.S. tax system closer to a consumption-based tax system through reforms of the income tax rules (without providing a value added tax (VAT) or national sales tax).
Today’s tax reform blueprint is the latest of six proposals released as part of House Speaker Paul Ryan's “A Better Way” initiative. Read the "blueprint" tax policy paper [PDF 3 MB] and a "snapshot" [PDF 77 KB] for tax reform.
The tax reform blueprint was developed by Ways and Means Chairman Kevin Brady (R-TX) with input from the broader House Republican caucus. While this blueprint document is not a legislative draft that can be acted on by the House, Brady's objective is to provide a new approach to the tax reform discussions as begun in 2011 under the then-Chairman of Ways and Means, Dave Camp (R-MI).
KPMG LLP will provide additional analysis and observations about this tax reform blueprint in coming days.
The blueprint proposes dramatic changes to the taxation of individuals and businesses, as well as to the structure and administration of the IRS. Some of the key proposed changes are summarized below.
The blueprint proposes changes to the taxation of individuals, such as to:
The blueprint also explains that a separate task force on health care addressed the exclusion for employer-provided health insurance; this health care plan, released June 22, proposes to cap the exclusion at an unspecified level that would affect only the “most generous” plans and would ensure job-based coverage continues unchanged for the vast majority of health insurance plans. Read TaxNewsFlash-Legislative Update
In addition, the blueprint indicates that, while it continues existing tax incentives for retirement savings, the Ways and Means Committee will examine those incentives in developing options for an overall approach to retirement savings and will explore the creation of more general savings vehicles and the consolidation and reform of the multiple existing incentives for savings and investment.
The blueprint proposes changes to the taxation of businesses, including proposals to:
The blueprint also indicates that, while it preserves the last-in-first-out (LIFO) method of accounting and a credit to encourage research and development (R&D), Ways and Means will continue to evaluate options for making both the treatment of inventory and the R&D credit more effective and efficient in the context of the blueprint’s tax system.
In general, the blueprint proposes to move to a “destination-basis” territorial tax system that follows consumption, rather than the location of production, by providing border adjustments exempting exports and taxing imports. More specifically, the blueprint proposes the following:
The blueprint proposes to restructure the IRS into three major units (families and individuals, businesses, and an “independent small claims court” unit), each of which would be committed to “service first” and would be accountable to a “taxpayer bill of rights.”
The IRS would be headed by a new “administrator” appointed by the president, with the advice and consent of the Senate. The administrator would have a three-year term, with the president only being allowed to reappoint an administrator once.
The blueprint indicates that Ways and Means would craft clear rules to serve as an appropriate bridge from the current tax system to the new tax system, with particular attention given to comments received by stakeholders.
The blueprint indicates that it “envisions tax reform that is revenue neutral.” In this regard, it notes that:
The blueprint also indicates that it “will deliver a new tax system under which no income group will see an increase in its Federal tax burden.”
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