Yesterday the Trump Administration announced the outline of its tax reform proposal. The proposal combines elements of President Trump’s original tax reform proposal announced during the campaign and of the House Republicans’ tax reform proposal (which is sometimes referred to as the “Blueprint”).

Under the proposal announced yesterday, corporate income tax rates would be reduced from the current 35% rate to 15%, which is the top corporate rate that Trump proposed during the campaign. This rate is lower than the 20% corporate rate that the House Republicans have proposed in the Blueprint.

A special maximum “pass-through” tax rate would also be set at 15%. It is unclear, however, whether the pass-through rate would be available to all pass-through businesses, or whether service businesses (such as law firms, accounting firms and investment firms) and “large” pass-throughs would be excluded. It is also unclear whether reasonable salaries would be deemed paid at the maximum individual rates, as the House Republicans’ similar proposal contemplated.

Individual tax rates would be reduced to three brackets: 10%, 25% and 35%. The 10% rate is lower than the 12% rate that Trump had proposed during the campaign. The 35% maximum rate is below the current 39.6% maximum rate, but higher than the 33% rate that Trump and the House Republicans had proposed. However, yesterday’s proposal does not indicate the income level for each bracket. President Trump’s earlier proposal had repealed the personal exemption, which would have had the effect increasing the taxes paid by large low-income families. Yesterday’s proposal is silent on personal exemptions.

The Trump Administration proposal would tax capital gains at a maximum rate of 20%, which is the same rate that President Trump had proposed during the campaign, but is higher than the 16.5% rate that the House Republicans proposed in the Blueprint. The 3.9% Medicare tax on investment income that was enacted as part of the Affordable Care Act would be repealed.

The standard deduction would be doubled from the current $12,700 for married couples to $25,400. Individuals would be denied all deductions, other than for mortgage interest and charitable contributions. Importantly, state and local taxes would not be deductible for federal income tax purposes; this is consistent with the House Republicans’ proposal in the Blueprint. (President Trump had originally proposed limiting the deductions for joint filers to $200,000.) The Trump Administration has also suggested additional tax relief for child care and dependent expenses. President Trump’s earlier proposal provided for a deduction for childcare and eldercare, and spending rebates for childcare expenses.

The corporate and individual alternative minimum tax would be repealed, as would the estate tax. It is unclear whether the gift and generation skipping transfer tax would be retained.

The Trump proposal does not include the controversial border adjustment feature of the House Republicans’ plan, and does not mention the House Republicans’ proposal to allow expensing for equipment, buildings and improvements or the House Republicans’ proposal to deny deductions for interest expense. (President Trump had previously proposed that taxpayers be permitted to choose between expensing new investments and the deductibility of interest.)

Finally, the Trump proposal would convert the current “worldwide” international tax system into a “territorial” system under which most foreign-source income is exempt. Trump’s original proposal called for a deemed repatriation of offshore corporate profits held in cash at a 10% rate, and other earnings at 4%. The House Republicans’ proposed rates were 8.75% for cash and cash equivalents and 3.5% for other offshore earnings. The Trump Administration did not announce a new rate yesterday, suggesting that it will ultimately propose a higher rate of tax on deemed repatriations.

Trump’s campaign tax proposal had been estimated to reduce federal receipts by between $2.6 trillion and $6.2 trillion over ten years. The new proposal is likely to lose less revenue because the top individual rates are higher and the standard deduction is lower, but will almost certainly be scored to increase the deficit substantially. Secretary of the Treasury Steven Mnuchin has said that growth will offset any net cost of the proposal. If, as is expected, the proposal is scored to lose revenue outside of the ten-year budget window, it would be ineligible for passage through reconciliation under Senate procedural rules, and therefore would need the support of some Senate Democrats in order to reach the 60 vote threshold to end any filibuster attempt.

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Photo of Richard M. Corn Richard M. Corn

Richard M. Corn is a partner in the Tax Department. He focuses his practice on corporate tax structuring and planning for a wide variety of transactions, including:

  • mergers and acquisitions
  • cross-border transactions
  • joint ventures
  • structured financings
  • debt and equity issuances
  • restructurings
  • bankruptcy-related transactions

Richard M. Corn is a partner in the Tax Department. He focuses his practice on corporate tax structuring and planning for a wide variety of transactions, including:

  • mergers and acquisitions
  • cross-border transactions
  • joint ventures
  • structured financings
  • debt and equity issuances
  • restructurings
  • bankruptcy-related transactions

Richard advises both U.S. and international clients, including multinational financial institutions, private equity funds, hedge funds, asset managers and joint ventures. He has particular experience in the financial services and sports sectors. He also works with individuals and tax-exempt and not-for-profit organizations on their tax matters.

Richard began his career as a clerk for the U.S. Court of Appeals for the Fourth Circuit Judge J. Michael Luttig and then went on to clerk at the U.S. Supreme Court for Associate Justice Clarence Thomas. Prior to joining Proskauer, he most recently practiced at Sullivan & Cromwell as well as Wachtell, Lipton, Rosen and Katz.

Photo of David S. Miller David S. Miller

David Miller is a partner in the Tax Department. David advises clients on a broad range of domestic and international corporate tax issues. His practice covers the taxation of financial instruments and derivatives, cross-border lending transactions and other financings, international and domestic mergers…

David Miller is a partner in the Tax Department. David advises clients on a broad range of domestic and international corporate tax issues. His practice covers the taxation of financial instruments and derivatives, cross-border lending transactions and other financings, international and domestic mergers and acquisitions, multinational corporate groups and partnerships, private equity and hedge funds, bankruptcy and workouts, high-net-worth individuals and families, and public charities and private foundations. He advises companies in virtually all major industries, including banking, finance, private equity, health care, life sciences, real estate, technology, consumer products, entertainment and energy.

David is strongly committed to pro bono service, and has represented more than 200 charities. In 2011, he was named as one of eight “Lawyers Who Lead by Example” by the New York Law Journal for his pro bono service. David has also been recognized for his pro bono work by The Legal Aid Society, Legal Services for New York City and New York Lawyers For The Public Interest.

Photo of Martin T. Hamilton Martin T. Hamilton

Martin T. Hamilton is a partner in the Tax Department. He primarily handles U.S. corporate, partnership and international tax matters.

Martin’s practice focuses on mergers and acquisitions, cross-border investments and structured financing arrangements, as well as tax-efficient corporate financing techniques and the tax…

Martin T. Hamilton is a partner in the Tax Department. He primarily handles U.S. corporate, partnership and international tax matters.

Martin’s practice focuses on mergers and acquisitions, cross-border investments and structured financing arrangements, as well as tax-efficient corporate financing techniques and the tax treatment of complex financial products. He has experience with public and private cross-border mergers, acquisitions, offerings and financings, and has advised both U.S. and international clients, including private equity funds, commercial and investment banks, insurance companies and multinational industrials, on the U.S. tax impact of these global transactions.

In addition, Martin has worked on transactions in the financial services, technology, insurance, real estate, health care, energy, natural resources and industrial sectors, and these transactions have involved inbound and outbound investment throughout Europe and North America, as well as major markets in East and South Asia, South America and Australia.