The president has vowed since his 2016 White House campaign to overhaul the US tax code.
Republicans in Washington have unveiled a nine-page framework on the legislation they're crafting to overhaul the federal tax code. The Senate has until the end of this week to vote on the bill using a procedure known as reconciliation, which requires only a simple majority to pass.
Republican leaders are meeting Wednesday with rank-and-file lawmaker to sell the plan. They have also deliberated on cutting taxes that are levied on sole proprietorships.
A lot of this work will be done by the tax-writing committees in Congress.
The top individual tax rate is now 39 percent and the lowest is 10 percent. That's not as low as Trump wanted, but is still a huge reduction, to the lowest top rate since 1940. So a family of four could no longer reduce their taxable income by more than $16,000. The corporate alternative minimum tax will also be eliminated. 'We'll see what happens, but I hope it's going to be 15 percent.
For individuals, there is much less clarity. Small businesses would get a 25 percent tax rate with unspecified rules aimed at preventing wealthy owners from classifying wage income as business income. Many details will need to be worked out, including limits on pass-throughs, limits on corporate deductions, and income levels for different tax brackets. A report by Tax Foundation says that a difference of 5 percent between what the president and Republicans differ on represents $700 billion. We don't know the specific income cutoffs, but we do know he wants to raise the bottom rate from 10% to 12%. And many supply-side Republicans are skeptical of the "economic value" of child tax credits.
-Many itemized deductions would be eliminated, though it's not clear which ones would go, though incentives for contributing to IRAs, along with mortgage deductions, would continue. The standard deduction would almost double, to $24,000 for married couples and $12,000 for individuals, and would include personal exemptions. The AMT, which was created to ensure that wealthy taxpayers pay their fair share and don't take advantage of all the deductions in the current tax code, is the only reason Trump paid significant taxes in his leaked tax return from 2005. He said there "has to be a big change in the total state and local deductibility", but that he believes it will offer "net savings" for many taxpayers when combined with other changes, like increasing the standard deduction and lowering rates.
The plan also includes a special income tax rate for "pass-through" businesses, which include partnerships and LLCs.
Rep. Richard Neal of MA, the top Democrat on the Ways and Means Committee, came away from the White House meeting in a negotiating mood.
But crucial details, such as the income levels for the individual tax brackets, still haven't been hammered out and are being left to Congress. Kevin Brady who is a Texas Representative says that the reforms will result in the lowest tax cuts in modern business history. Orrin Hatch, R-Utah.
The White House and Republicans plan a formal roll out later Wednesday.
Under the framework, the top individual tax rate would be 35% and the corporate tax rate would be 20% (Trump had been calling for a 15% corporate tax rate). While Republicans see the tax breaks as essential to creating jobs and meeting the White House's lofty goals of three-percent GDP growth by 2020, Democrats will likely oppose numerous tax benefits that will be going to corporations and extremely wealthy individuals.
Trump plans a trip to Indiana Wednesday for a speech on tax issues, a person familiar with the planning said.