At the end of September, the Trump administration and Congressional GOP leadership released their much-awaited proposal for tax reform in the “Unified Framework for Fixing Our Broken Tax Code.” For the full proposal, click here.

While the framework does not provide many specifics, some of the highlights include the following:

Businesses

Under current law, the maximum corporate tax rate is 35 percent.  The framework proposes a 20 percent corporate tax rate, and the elimination of the corporate alternative minimum tax.

For pass-through businesses, such as sole proprietorships, partnerships, and S corporations, owners currently pay tax at the individual rates (see below).  The framework provides for a 25 percent tax rate for pass-through income.

Individuals

Currently, individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent.  The framework calls for replacing the current individual tax rates with a new, three-bracket structure at 12, 25, and 35 percent.  However, the framework does not include proposed income ranges for the new brackets, making it difficult to determine whether taxpayers would realize an increase or decrease in their effective rate (with the exception of those taxpayers in the 39.6 percent bracket, as those rates would certainly decrease).  Additionally, the framework proposes to eliminate the alternative minimum tax (AMT).

Deductions

For 2017, the standard deduction amounts are $6,350 for individuals and $12,700 for married filing jointly.  The standard deduction under the proposal would nearly double to $12,000 for individuals and $24,000 for married filing jointly.  But, nearly all individual itemized tax deductions seem to be eliminated under the framework, with the exception of the mortgage interest deduction and charitable contribution deduction.  Other exemptions, deductions and credits would also be eliminated under the framework to provide for a simpler systems and lower overall tax rates.

Estate Tax

The current maximum federal estate tax rate is 40 percent with an exclusion of $5 million, adjusted for inflation ($5.49 million in 2017).  The proposal calls for elimination of the federal estate tax and the generation-skipping transfer tax, but does not address the gift tax.  The President has also indicated in the past that he would replace the estate tax with a carryover basis rule so that beneficiaries would be required to use the decedent’s basis instead of a step-up (date of death) basis in inherited assets.

Overall, the framework calls for simplification of the tax code and drastic tax cuts.  At this time, it is just a proposal, and legislation has yet to be developed.