On April 26, 2017 Treasury Secretary Mnuchin and National Economic Director Cohn during a press briefing outlined the basic features of the Trump Administration tax reform plan.  This plan, while short on substance, is heralded as the biggest tax cut in US history.  The plan is basically a modification of the Trump campaign proposals released in autumn 2016.

Most prominently the plan features a 15% tax rate on business income and would apply to corporate as well as flow-through partnership, or S corporation business income.  This represents a significant reduction from the current 35% corporate rate and the 39.6% flow-through rate.  Tax breaks for "special interest groups" would be eliminated.  There is no mention of the originally proposed immediate expensing of capital expenditures or elimination of net interest deductions.

Foreign source income generated by US companies would not be taxed as the US moves toward a territorial tax system.  Earnings accumulated in foreign countries before this change would be subject to an unspecified one-time charge (10% was suggested in 2016).  What is missing from the proposal and perhaps the most hotly contested new tax concept is the border adjustment tax.  Spokespersons for the Trump Administration have said that some concepts of import/export taxation are being considered but that the Ryan/Brady 20% border adjustment tax is not viable.

On the individual tax side, new tax brackets of 10%, 25% and 35% would be established.  The reduced tax rates would also be accompanied with the elimination of the alternative minimum tax and the 3.8% net investment income tax.  The estate tax would also be repealed although nothing was mentioned about the generation skipping tax or the gift tax.  Most advisors suspect that some form of the gift tax will remain to prevent income shifting between related taxpayers.

To offset the revenue losses caused by the repeal or reduction of personal taxes, the proposal calls for the elimination of all itemized deductions for taxpayers but for mortgage interest and charitable donations for individual taxpayers.  The elimination of deductions for State income taxes and property taxes will have a significant cost to "Blue" state taxpayers with high income tax and property tax rates.  Charitable donations will remain basically untouched as the April 26 proposal avoids the formerly suggested cap on itemized deductions.

The Trump Administration clearly wants to work with the House and Senate to achieve tax reform.  Preliminary comments from Democratic Congressional leaders suggest that Democratic support will not exist as too many of the tax benefits are aimed at high net worth taxpayers.  Without Democratic support, it is likely that any legislation will have to sunset in 10 years.  This is because of a Senate legislative requirement that laws passed under the budget reconciliation process (which requires only a majority vote) must be revenue neutral or the laws expire in 10 years.  Revenue impact from the Trump proposal is difficult to predict but some experts predict up to a $7 Trillion revenue shortfall from this legislation.  Trump Administration officials have suggested that the shortfall can be eliminated with significantly higher economic growth using a dynamic scoring model for increased tax revenues.

Needless to say, the new proposals present many unanswered questions.  Nevertheless many advisors predict that some type of tax reform could be in place by the end of 2017. 

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