Senate GOP Releases Comprehensive Tax Reform Plan

Yesterday, the Senate released its tax reform plan. The Senate plan would keep the seven brackets, but generally with lower or equivalent rates – 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent and 38.5 percent. The standard deduction would be $12,000 for single filers and $24,000 for married couples. The Senate plan would also eliminate taxpayers’ ability to deduct both state and local income and property taxes. The corporate rate would be reduced from 35 to 20 percent but would be delayed for one year while pass-through businesses’ tax rate would be set at a top rate for those businesses in the low 30s compared to the 25 percent rate. The majority of small businesses are organized as pass-throughs meaning that profits are passed on to the owner and reported on his/her individual tax return. PMAA has argued for a competitive tax rate for pass-throughs and is currently reviewing the pass through provision.

Meanwhile, the House Ways and Means Committee approved its tax reform bill yesterday which sets the stage for House floor action next week. The Committee did make changes to improve how the tax plan treats pass through entities by providing a new tax rate of 9 percent for businesses earning less than $75,000 in income. The benefit is phased out as taxable income exceeds $150,000 and fully phased out at $225,000. The bill would still limit access to the new 25 percent tax rate. For business owners, just 30 percent of their income would qualify for that rate; the remaining 70 percent would be treated as wages. Or they could use a formula based on their level of capital investment to determine how much income would get the new rate.

Lawmakers are hoping to put a final comprehensive tax bill on President Trump’s desk before Christmas. PMAA will be reviewing the Senate bill in detail over the next few days.