The House Republican Conference under the leadership of Speaker Paul Ryan (R-Wis.) and House Ways and Means Chairman Kevin Brady (R-Texas) today released their blueprint to reform the tax code. This pro-growth plan cuts taxes for ALL American families and businesses, simplifies the code, promotes strong economic growth, and allows our businesses to better compete against foreign competitors.
“The Republican blueprint for tax reform is a clear and dramatic path to strong economic growth and job creation,” said Grover Norquist, president of Americans for Tax Reform. “When enacted it will steer America on a sharp U-turn from our present road to serfdom. America cannot limp along on its weak and weakening ‘recovery’ — with this blueprint the path is clear.”
Norquist continued: “The blueprint is completely consistent with the Taxpayer Protection Pledge a majority of the members of congress have signed promising the American people that they will oppose and vote against any net tax hike.”
For the typical American family, this blueprint will simplify the code so that an annual tax return can be filed on a postcard. For businesses on Main Street, this plan will cut needless bureaucratic red tape and complexity. For iconic American businesses, this blueprint will ensure they can compete, and thrive against foreign competitors. And for the economy, this plan will replace the policies that led to seven years of stagnant growth with a vision that fixes our broken code and promotes opportunity for all.
Importantly, this proposal takes the code much closer to a system that taxes in the fairest and most efficient way – by taxing once, at the point of consumption. Basic elements of the plan include:
Individual Tax Rates: Consolidates the existing seven tax brackets into three brackets – 12 percent, 25 percent, and 33 percent.
Full Business Expensing: 100 percent immediate, full business expensing, meaning businesses will be allowed to deduct purchases immediately rather than being forced to use the arbitrary and confusing system of depreciation which distorts investment.
Business Tax Rates: Under the current code, American businesses face the highest tax rates in the developed world. This plan ends that by cutting the corporate tax rate from the existing 35 percent rate to just 20 percent. The blueprint also cuts the tax rate on pass-through entities from more than 40 percent to just 25 percent.
International Tax System: Streamlines and overhauls the confusing, complex and uncompetitive international tax system.
– Replaces the worldwide tax system with full territoriality, meaning that American businesses will no longer be subject to double taxation – once when they earn this income overseas and again when this income is brought back to the U.S.
– As part of the shift toward a consumption based system, the blueprint calls for applying businesses taxes on a destination basis. This means that American exports will not be subject to U.S. income tax but products and services sold in the U.S. will be taxed regardless of whether they were produced here, or imported from a foreign country. This ends the competitive disadvantage our exports had when competing with the rest of the world, and that foreign imports had with local competitors.
Death Tax: Repealed
Capital gains and Dividends: Reduces taxes on investment income by creating a 50 percent deduction on a taxpayer’s bracket. This means cap gains/dividends rates of 6 percent, 12.5 percent, and 16.5 percent, far below the existing 23.8 percent. While the plan is silent on section 1031 “like-kind exchanges,” it does call for a tax code that promotes business investment.
Alternative Minimum Tax: Repealed
Individual Credits: Consolidates five family deductions into two – a larger standard deduction and a child/dependent tax credit. Preserves tax incentives for charitable giving and homeownership and eliminates all other itemized deductions.
Business Credits: Calls for simplifying the code by eliminating the majority of deductions and credits, with the R&D tax credit being one notable exception.
Interest Deduction: Allows businesses to deduct interest expense from any interest income but disallows deductions from net interest expenses. This removes the distortions in the tax code that favor debt over equity toward the ideal consumption base.