Congress Begins Work On Tax Reform

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We view the unified framework for tax reform, released September 27 by the Trump administration, the House Ways and Means Committee, and the Senate Finance Committee, as a starting point for tax reform negotiation; we don't think it's truly representative of what an eventual tax reform bill may look like.

"Under our current broken tax code, USA companies pay a tax when exporting products, but not when they import products", Brady explains in the Blueprint. The stakes are high and the benefits for taxpayers and the economy are real. "That needs to change". Forward-looking Canadian businesses may also want to consider the potential impact on their businesses if US tax reform were to result in "increased competitiveness" of USA companies, both inside and outside the United States. A lower corporate rate along with closing loopholes and eliminating numerous business tax credits and deductions - as well as firm enforcement of the law - will keep companies here and produce more government revenue. To transition to this new system, foreign earnings that have accumulated overseas under the old system will be treated as repatriated, and any accumulated foreign earnings held in illiquid assets will be subject to a lower tax rate than foreign earnings held in cash or cash equivalents. The United States has one of the highest corporate statutory income tax rates in the industrialized world at 38.91 percent (the federal rate plus an average of the corporate rates levied by states). The chained CPI proposal is essentially a proposal to slowly and steadily increase marginal tax rates.

The White House on Thursday sought to defend the central premise of its tax overhaul - that it would represent a huge benefit to the middle class - amid growing doubts from tax policy experts, Democrats and even some prominent conservatives that it would accomplish that goal. Meanwhile, U.S. consumers owe $1 trillion in credit card debt. The "replacement" proposed is full expensing of capital expenditures for a minimum of five years.

Farm Bureau President Zippy Duvall said, in a statement, that AFBF was encouraged by the inclusion of lower tax rates for individuals who own businesses, elimination of the death tax, and some business interest deductibility. There is a wide range of policy outcomes here and the resolution of what "partially limited" means will be closely watched by Canadian companies. It leaves the specific rates to be determined by the Congressional committees.

"Unlike all our worldwide competitors, America still forces its businesses to pay up on what they earn overseas", Brady said. While the precise form of these measures is not addressed, one can reasonably expect enhanced earnings stripping protections (perhaps similar to those endorsed by Action 4 from the BEPS project) and other measures created to remove the incentives for inversions. We should cut red tape and make it simpler to file taxes and get a refund.

The proposal's impact on personal income taxes is harder to discern. And to the extent tax cuts generate more economic activity, there's the potential for the creation of more tax revenue at all levels of government. As a result, the framework is best viewed as a starting point and it remains to be seen how much of it holds up under intense political pressure and deal making.

Among other things, the framework would drastically reduce tax rates for businesses and repeal the estate tax.

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