GOP Days away from Nation’s Biggest Tax Law Rewrite in Years, here are 4 of the Biggest Questions
The GOP is closing in on a massive legislative rewrite for taxes which is set to be revealed on September 25th. The Trump administration has thus far kept the details tightly under wraps, and everyone is wondering “Will these changes be tax reform, or tax cuts?”. After the big reveal, bipartisan talks will begin to negotiate the specifics and details of the plan.
Here are four of the biggest questions the plan will likely address
Tax rates for Individuals Versus Corporations
It has been over 30 years since the last US Tax code rewrite. The last rewrite in 1986 lowered tax rates for individuals, and raised them for companies. This time around congress has committed to making any changes revenue neutral. Congress also has their eye on ‘pass-through’ corporations which have their income “pass through†to their owners to be taxed under the individual income tax. These include Sole Proprietorships, Partnerships, and S-Corporations and make up somewhere between 80 – 95% of businesses in the US.
Top Corporate Tax Rates
In the US the current cap for corporate tax rates is 35%. By comparison China currently has a Corporate Tax rate that caps at 15%, but is lower for industries the Chinese Government wants to encourage to grow. President trump has repeatedly expressed his interest in bringing US corporate tax rates to a level which would be competitive with China, encouraging big businesses to set up shop on our shores. While politicians are skeptical that our tax rates could be brought down as low as 15%, House Speaker Paul Ryan indicated on Friday that a rate in the “Mid-to-low-20s” isn’t outside of the realm of possibility.
Hedgefund Tax Rates
US Treasury Secretary Steven Mnuchin implied last week that a tax loophole which applies to income for hedge fund managers will be closed. This is important because a hedge fund manager’s income is considered a share of the company profits rather than salary or wage income. “The president has been very clear that for hedge funds, they will not have the benefit of carried interest” said Mnuchin last week. These changes to carried interest, however, would only add about $20 billion to the 4.1 Trillion collected in taxes each year.
Will Tax Changes Apply Retroactively?
US Treasury Secretary Steven Mnuchin has said that tax cuts which apply retroactively to January 1st 2017 are “[…]still something we are considering, and it would be a big boon for the economy.” – Lawmakers are on the fence about how expensive of a tax cut they will permit. Political feasibility is one of the biggest roadblocks to tax reform. Many items such as mortgage interest deduction and the preferential treatment of carried interest remain in the tax code because the current political environment makes them difficult if not impossible to remove.