Federal income tax was a major issue in the 2016 presidential election. On the campaign trail and during his first 100 days as President, Trump has promised “massive” tax cuts for businesses and individuals. On April 26, the White House finally outlined its 2017 Tax Reform for Economic Growth and American Jobs. The proposal isn’t formal legislation; rather, it’s a one-page outline composed of broad principles.

Most of the proposed reforms loosely align with the Better Way Tax Reform Blueprint that was released by the House Republicans last summer. In an interview on May 1, Trump admitted that the White House proposal was a “starting point” — and he might be willing to lose some of its provisions in negotiations with Congress. Here’s what we know so far.

For Businesses

The plan calls for the top corporate tax rate to decrease from 35% to 15%. Likewise, it would cut the top rate on pass-through businesses, including sole proprietorships, from 39.6% to 15%. Other provisions include: 1) a one-time tax on the repatriation of foreign earnings of U.S. companies at an unspecified rate, and 2) a switch to a more competitive “territorial” system of taxing foreign earnings. Trump’s plan doesn’t address expensing of capital expenditures or interest deductibility.

For Individuals

Trump would also like to make major changes to the personal tax system, including:

• Reducing the number of tax brackets from seven to three (10%, 25% and 35%),
• Nearly doubling the standard deduction (from $12,700 per couple for 2017 under the existing rules to $24,000 per couple),
• Eliminating all itemized deductions for individuals, except for the mortgage interest and charitable contribution deductions,
• Repealing the alternative minimum tax (AMT), estate tax, and 3.8% net investment income tax (enacted as part of the Affordable Care Act), and
• Providing tax relief for child and dependent care expenses.

Because fewer taxpayers would itemize deductions under Trump’s plan, tax reporting would be simpler and high-income individuals would have fewer tax breaks to lower their taxable income. “Homeownership, charitable giving and retirement savings will be protected, but other tax benefits will be eliminated,” said National Economic Council Director Gary Cohn. The plan doesn’t call for changes to the capital gains and dividends rates.

In the Meantime

Before outlining his tax reform package, Trump signed an Executive Order on April 21, directing the Treasury to review tax regulations adopted during the past 18 months to ensure that they “do not unduly strain the American economy.” The Treasury has been instructed to revise or repeal “harmful rules that impose unnecessary costs and complexity on taxpayers.” So, some simplification efforts could happen while Congress is negotiating a tax reform bill.

Work in Progress

The Trump administration and congressional Republicans are determined to enact major tax reform before year end. But compromises may be made along the way. In order to become reality, the President’s vague proposal must be crafted into a detailed bill, which would have to pass in the House and the Senate before going to the President to be signed into law.

If ongoing health care reform efforts have taught Trump anything, it’s that nothing is certain or easy in Washington, D.C. During the coming weeks, the White House will conduct listening sessions with various stakeholders to receive their input and will continue working with Congress to develop the details of a comprehensive tax reform package.

Our tax professionals are atop the latest developments in legislation. Contact us for help with business or individual tax planning strategies under these unpredictable market conditions.