House Republicans are talking with President-elect Donald Trump’s transition team about how to fashion the biggest U.S. tax overhaul in three decades, the chairman of the House Ways and Means Committee says.
“We’re talking to the Trump team about timing” for producing written legislation that would slash tax rates on businesses and individuals and remake the U.S. tax code next year, said Kevin Brady, the Texas Republican who chairs the House’s tax-writing panel. “We’re writing provisions of the bill as we speak.”
Trump and House Republicans, led by Speaker Paul Ryan, want dramatic rate cuts. They also want to scrap features of U.S. tax law that they say put American companies at a disadvantage globally — and have spurred companies to leave as much as $2.6 trillion in profit overseas, where it remains untaxed.
“I’m here to tell you tax reform is going to occur in 2017,” Brady said Tuesday in Washington at a conference of tax professionals sponsored by Bloomberg BNA and KPMG LLP. While Trump’s plan differs in some ways from a tax overhaul “blue print” that Brady and Ryan released in June, the two plans “are kissing cousins,” Brady told reporters after his speech.
Asked if there were any aspects of the House plan that would be a “no-go” for negotiating with Trump’s team, Brady said no. “It’s all go-go on tax reform,” he said.
Both plans seek to lower the 35% corporate tax rate, the highest in the industrialized world, though companies typically pay far less by using tax credits and other strategies. Trump wants a 15% rate, while House Republicans propose 20%. For individuals, both plans call for collapsing the current seven individual tax rates to three — 12%, 25% and 33%. The current top tax rate is 39.6%.
Both plans also call for lower tax rates on partnerships, limited liability companies and other so-called pass-through businesses. Trump wants a 15% rate; the House plan calls for 25%.
Currently, the U.S. is the only country besides the African nation of Eritrea that taxes its companies on their global profit, regardless of where it’s earned. At the same time, companies can defer U.S. tax on those offshore earnings until they bring them to the U.S., or repatriate them. Trump has proposed a special tax rate of 10% on those overseas earnings; the House plan would create two rates: 8.75% for cash and cash equivalents and 3.5% otherwise.
Going forward, the House plan represents a major change: Moving toward a “destination-based” approach that would apply taxes based on where goods, services and intellectual property are consumed rather than where they’re produced. Companies would no longer pay taxes based on their overseas income. The plan also calls for a “border adjustments” system that would tax U.S. imports but not exports. (Trump has called for taxing some imports from China and Mexico.)
While House leaders are talking with Trump’s team, Utah Senator Orrin Hatch, the Republican chairman of the Senate Finance Committee, is working on a proposal aimed at ending the double taxation of traditional corporations — first at the corporate level and then when dividends are paid out, at the shareholder level. Hatch’s proposal, which hasn’t yet been released, would allow corporations to deduct dividends from their taxable income.
The proposal “could work with any kind of reform plan,” said Mark Prater, the chief tax lawyer for the Senate panel. “We expect to finish this proposal in short order.”