The tax code would be a far cry from the 75,000-page convoluted nightmare taxpayers annually struggle to comprehend if Republicans manage to accomplish the goals laid out in their tax reform blueprint released Friday.
After months of preparation, the Republican task force on taxes – led by House Ways and Means Committee Chairman Kevin Brady –unveiled their plan, which the Texas Republican said reaches everything he hoped to accomplish.
The sixth and final plank of the GOP’s policy agenda, titled “A Better Way,” would eliminate four of the seven individual income tax brackets – dropping the top marginal rate from 39.6 percent to 33 percent, followed a 25 percent and 12 percent rate.
Republican lawmakers promised, if the proposal is implemented, the tax code would be simplified to the point where the majority of Americans could do their taxes on a form as simple as a postcard.
“I think people will be surprised by how hard we are listening,” Brady told The Daily Caller News Foundation. “We’re proposing a fair and simple and understandable tax code – it has the basics that a family needs, but eliminates all the special breaks and loopholes that make our tax code so hard to understand.
Brady said one of the provisions he is most excited about is the lower rates for savings and investments.
The top statutory tax rate on investment income would see a major cut, capping the highest rate at 20 percent on investment income including capital gains, dividends and interest income. Filers would pay 6 percent, 12.5 percent or 16.5 percent depending on their income bracket and allows for a 50 percent deduction, which the plan’s architects say will help Americans save more for retirement.
“When they are saving for retirement, the interest they get from the dividends, perhaps from a company they invested in, or longer term capital gains, they are going to be rewarded in a big way,” Brady said. “One it’s great for families, two it’s great for the economy.”
Under the proposal, the alternative minimum tax – a supplemental income tax paid by 4.4 million Americans in 2016 – would be eliminated along with the estate tax and all itemized deductions with the exception on the mortgage interest deduction and the charitable contribution deduction. Instead, the standard deduction would be significantly increased to $24,000 for married couples filing jointly, $18,000 for single filers with a child and $12,000 individuals. In addition, the child tax credit would shoot up from the 2016 rate of $1000 to $1500.
Corporations and small businesses would also see their rates slashed.
According to senior House Republican leadership aides, businesses would be able to fully and immediately write-off investments in tangible and intangible assets.
The way a small businesses filing as self proprietorships would be completely transformed – instead of being taxed at the marginal individual tax rate they would pay a new small business tax rate ensuring they don’t pay more than 25 percent.
In an attempt to prevent companies from fleeing the country for lower tax rates, the corporate tax rate would drop form a top rate of 35 percent – one of the highest in the western world – to 20 percent. The GOP aides said to keep the country competitive in the global marketplace drastic changes would be made, switching to a “territorial system.” Several notable corporations, most notably pharmaceutical giant Pfizer, attempted to merge with foreign companies in an attempt to save costs.
“If we achieve this blueprint, we will catapult America from dead last in the world among our global competitors to leading the pack in pro-growth tax codes – which means our economy is going to grow faster,” Brady told The DCNF.
Republicans alleged the United States is currently at a disadvantage as it faces a penalty on U.S. experts and subsidies U.S. imports, unlike other countries, which have broader adjustment in their value-added taxes allowing them to offset costs.
Under the plan, exports abroad would no longer face a U.S. tax while all imports into the country would be taxed regardless of location.
“We believe that brings an even playing field globally,” a House GOP aide told reporters. “Another advantage it has is it actually makes this whole transfer pricing and base erosion controversy go away. If you just have a system that just says all that matters is where the customer is, it doesn’t matter whether you are producing it in Wisconsin or producing it in Bermuda – if it’s sold to a U.S. customer it’s subject to full tax, if it’s sold to a foreign customer it’s exempt from tax.”
The proposal calls for major changes to the Internal Revenue Service, calling for the federal agency to be restructured into three divisions: one focusing on individuals and families, another dedicated to business taxes and a division providing a small claims court to handle disputes.
A GOP aide said, while there are some differences between the plan presumed GOP presidential nominee Donald Trump’s plan and the House Republican’s blueprint, they are confident, if elected, he will be willing to get behind the majority of the provisions laid out in the proposal.
Brady said he believes, individually, there are large parts of it Democrats will like but is unsure if the conference will get behind the plan, but is committed to working with members on the other side of the aisle who are serious about simplifying the code.
The chairman added the task force will spend the remainder of the year listening to experts and constituents and writing the legislation so they are ready to introduce it if a Republican president takes the White House in November.
“We have to go bold, we have no choice and this blueprint goes bold in big way,” Brady said.
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