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Trump Administration Lays Out Tax Reform Objectives

In late April, the tax policy debate in the nation’s capital took another small step forward as the Trump administration unveiled the president’s reform objectives.  While short on details, the proposal provides some guidance on where President Trump wants the debate to end up.

Broad Brush Strokes

Based on briefings by administration officials and an outline released by the White House, the president wants to lower taxes and simplify the code for individuals by reducing the current seven tax brackets to three: 10, 25 and 35 percent, doubling the standard deduction so that a married couple won’t pay any taxes on their first $24,000 of income and providing additional tax benefits for families with child and dependent-care expenses.

For individuals, the president’s proposal would also repeal the estate and alternative minimum taxes, as well as the 3.8 percent Obamacare tax on passive income. The top tax rate on capital gains and dividends would be reduced to 20 percent.  However, the administration is also proposing to eliminate all deductions other than those for mortgage interest, charitable donations and 401k contributions.

For businesses, the administration is proposing a 15 percent tax rate for both corporations and pass-through entities and a territorial system to change the way U.S. companies operating internationally are taxed. However, the White House also wants to impose a one-time tax on “trillions of dollars held overseas” (rate not specified) and eliminating “tax breaks for special interests.”

Administration officials admit the proposal is short on details and that this is just the start of the tax reform conversation.  “[W]e are in constant dialogue with the House and the Senate,” National Economic Council Director Gary Cohn said.  “We have outlines; we have a broad-brush view of where they’re going to be.  We’re running an enormous amount of data on the proposals right now. We will be back to you with very firm details.  We’re very confident to where they’re going to be, we just wanted to get out and give you a broad-brush overview where we are.”

“[W]e are working with the House and Senate on all the details.  And this is – everybody has an agreement we are going to move this as fast as we can.  And when we have an agreement we will release the details and go through it with all of you,” Treasury Secretary Steve Mnuchin said.

What’s Next?

Unlike other recent Republican tax proposals, the president’s plan isn’t deficit neutral.  The Committee for a Responsible Federal Budget estimated it would add between $3 trillion and $7 trillion to the national debt over the next ten years.  Budget neutrality is an important issue because Republicans hope to use the budget reconciliation process to move tax legislation through Congress. That allows a lower vote threshold in the Senate (reconciliation legislation is privileged and not subject to the filibuster), but to qualify, the bill can’t have negative budget impact beyond a ten-year window.

Response from House Republicans was generally positive.  House Speaker Paul Ryan (R-Wisc.) said it was evidence of progress and that Trump and Hill Republicans were “getting on the same page.”  Ryan, Senate Majority Leader Mitch McConnell (R-Ky.), House Ways and Means Chairman Kevin Brady (R-Texas) and Senate Finance Committee Chairman Orrin Hatch (R-Utah) said in a joint statement that, “The principles outlined by the Trump Administration today will serve as critical guideposts for Congress and the administration as we work together to overhaul the American tax system and ensure middle-class families and job creators are better positioned for the 21st century economy.”

What Does It Mean for ARSA?

The U.S. aviation maintenance industry is dominated by small to medium-sized businesses overburdened by a complex and inefficient tax code. The Trump administration’s reform goals apparently share ARSA’s priority for both corporate and pass-through entities. Without all the details, the proposal is a bit of a mixed bag with regards to business incentives and capital investment and leaves unanswered international questions.

If you have questions or what to share input with the association as the debate progresses, contact Christian A. Klein (christian.klein@arsa.org).



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