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Business and Policy Areas
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House GOP Offers Tax Reform Blueprint

June 27, 2016

Earlier this year, Speaker Paul Ryan (R-WI) called on his House Republican colleagues to develop a slate of proposals to serve as a framework for legislative action in the near future. Ryan's plans, together referred to as "A Better Way," include platforms around six areas: poverty, national security, the economy, the Constitution, health care, and tax reform. Papers and other materials outlining each plank have been released over the past weeks.

Ryan asked House Ways and Means Committee Chairman Kevin Brady (R-TX) to lead the task force charged with developing the tax reform blueprint, which was released on Friday, June 24, in a 35-page report and summary. The report will serve as the framework for legislation to be developed for action in 2017.

The plan seeks to adhere to the longstanding Republican goal to "broaden the base and lower the rates" and also ensure the U.S. corporate tax system is internationally competitive. The blueprint is organized around three ideas:  simplicity and fairness; jobs and growth; and a service-first Internal Revenue Service (IRS).

Simplification of Tax Benefits for Higher Education

The task force members call for simplification and consolidation of myriad higher education tax benefits. They state in the blueprint, "Under current law, there are over a dozen different overlapping tax benefits relating to education. These tax benefits are so complicated that many taxpayers cannot determine the tax benefits for which they are eligible. In fact, the IRS publication on tax benefits for education is almost 100 pages long."

While there is little detail, their goal is to streamline current-law provisions and "to provide a more effective and efficient package of higher education tax benefits that will cover both college and vocational training programs, including a savings incentive, such as 529 plans, and tax relief targeted at helping low- and middle-income families with the costs of higher education, such as the American Opportunity Tax Credit."

Charitable Giving

"The Committee on Ways and Means will develop options to ensure the tax code continues to encourage donations, while simplifying compliance and record-keeping and making the tax benefit effective and efficient," the task force reports. The blueprint would protect both the charitable and mortgage interest deductions—but eliminate all other deductions.  

It is very possible, if not likely, that changes to both the higher education tax provision and the charitable deduction will alter their current scope and value. NACUBO is pleased to see a commitment to these important elements of the tax code but will actively scrutinize the details of any forthcoming legislative language to determine the impact of any efforts to make these provisions more "effective and efficient."

Notably, because of the increase in the standard deduction and elimination of other itemized deductions, the number of taxpayers taking the charitable and mortgage interest deductions will likely shrink as more will likely opt for the larger standard deduction.

Overarching Reforms

The education and charitable giving provisions are much smaller elements in the proposed tax reform framework that result in a major overhaul of the tax code.

To achieve the goals of simplification and lower rates, the seven current individual brackets would be collapsed to three; the top individual rate would be lowered to 33 percent. The plan would consolidate the standard deduction into a new larger standard deduction: $24,000 for married individuals filing jointly, $18,000 for single individuals with a child in the household, and $12,000 for other individuals—and in so doing eliminates many credits, deductions, and exclusions.

The blueprint calls for numerous international reforms. Highlights of proposed business and individual reforms include:

Business Tax Reform

  • Lowers the corporate tax rate to 20 percent.
  • Repeals the corporate Alternative Minimum Tax.
  • Creates a new business tax rate of 25 percent on the active business income of sole proprietorships or pass-through entities.
  • Generally eliminates unspecified "special interest deductions and credits."
  • Includes an unspecified R&D credit.

Individual Tax Reform

  • Consolidates the current seven brackets into three brackets—12, 15, and 33 percent.
  • Repeals the individual AMT.
  • Eliminates the estate tax.

The blueprint does not hesitate to express dissatisfaction with the IRS, arguing the "IRS has become a prime example of executive branch overreach, blatant misconduct, and government waste." The Republican plan would:

  • Reform the IRS into three units: families and individuals; business; and small claims court.
  • Replace the commissioner with an administrator appointed by the president and confirmed by the Senate, with a term of three years.
  • Eliminate the current IRS Oversight Board.

Contact

Liz Clark
Director, Federal Affairs
202.861.2553
E-mail

Mary Bachinger
Director, Tax Policy
202.861.2581
E-mail