United States: Republican Tax Reform Blueprint Would Slash Rates And Cut Incentives

House Republicans released a "blueprint" for tax reform on June 24 that calls for sharp cuts in tax rates and full expensing for business investments.

The plan is the product of the House Republican task force on tax reform, one of six groups created by House Speaker Paul Ryan, R-Wis., to deliver platforms prior to the Republican National Convention in July. The task force was headed by Ways and Means Committee Chair Kevin Brady, R-Texas, but Ryan has also been credited with influencing much of the final report.

The plan uses many tenets of the cash flow tax bill proposed by Rep. Devin Nunes, R-Calif., The core principles of the blueprint include the following goals:

  • Cutting the top individual rate from 39.6% to 33%
  • Creating a 50% exclusion for dividends, interest and capital gains, resulting in a top rate of 16.5%
  • Repealing all itemized deductions except charitable giving and mortgage interest
  • Repealing estate and gift taxes
  • Cutting the corporate rate to 20%
  • Creating a separate 25% rate on business income from pass-throughs
  • Providing full business expensing while repealing the interest deduction
  • Shifting to a territorial tax system with a 100% dividend deduction

The report cannot be considered a full legislative proposal, but is instead more of a framework or set of aspirational goals. It sets target rates and lays out major principles, but leaves the details unfinished and includes no legislative language. It is probably better viewed as a campaign platform to showcase the GOP's objective for tax reform.

Republicans said the framework is meant to be revenue neutral if eventually translated to legislation, but the report acknowledges this could be achieved only by paying for the repeal of Affordable Care Act (ACA) taxes with the repeal of ACA spending changes, using a "dynamic" economic analysis, and scoring it against a "current policy" baseline that assumes expiring provisions are permanent parts of the code. Even with these changes ameliorating traditional scoring rules, the plan would appear to result in a large net tax cut and substantial revenue loss. Legislation that incorporates all of the proposals put forward could require inclusion of a new revenue source, such as a consumption of business transfer tax, as suggested by Sen. Ted Cruz, R-Texas, in his campaign for the Republican nomination.

Individual taxes

The plan calls for replacing the seven individual tax brackets for ordinary income with three tax brackets of 12%, 25% and 33%. Interest, dividends and capital gains would be taxed at ordinary income tax rates after a 50% exclusion, resulting in effective rates of 6%, 12.5% and 16.5%. Capital gains and dividends can be taxed at a rate as high as 23.8% under current law, and interest as high as 43.4%.

The standard deduction would be increased to $24,000 for joint filers, $12,000 for single filers and $18,000 for single filers with a dependent. Personal exemptions would be eliminated, but the child credit would be increased to $1,500 ($1,000 refundable) with a new, nonrefundable $500 credit for dependents. The earned income tax credit would be retained.

The plan proposes to repeal all itemized deductions except those for mortgage interest and charitable giving. It also calls for consolidating education incentives, though it does not suggest a particular remedy. The plan also asks the Ways and Means Committee to explore replacing tax-preferred retirement accounts with a single universal savings vehicle.

The plan calls for repealing the net investment income tax and the 0.9% additional Medicare tax on earned income, as well as the individual alternative minimum tax (AMT), and the estate, gift and generation-skipping transfer taxes. It also acknowledges that the health care task force report would cap the exclusions for employer-provided health care in order to pay for a new tax credit to replace the ACA.

Business taxes

The plan would create a single 20% corporate rate, down significantly from the current top rate or 35%. In addition, it would provide a top rate of 25% for active business income from a pass-through entity. Pass-through businesses would be required to pay or be treated as paying reasonable compensation to their owners at ordinary income rates.

The blueprint recognizes the need to reduce rates on business income earned through both pass-throughs and regular corporations to avoid creating a competitive disadvantage between the two. But the 25% rate for pass-throughs in the draft does not fully address the competitive disadvantage. The proportional disadvantage between a 20% corporate rate versus a 25% pass-through rate is actually greater than the current disadvantage of 35% versus 39.6%.

The plan calls for full business expensing, ending the practice of depreciation for tax purposes. Businesses could generally no longer take an interest deduction in excess of interest income, although the report says special exceptions would be created for the financial and leasing industries.

Immediate expensing combined with eliminating the interest deduction is perhaps the most controversial issue included in the blueprint. Although capital intensive businesses with significant cash balances could benefit greatly from such a change, service businesses and other growing businesses without access to internally generated funds could be at a disadvantage.

The report generally calls for the end of all targeted tax benefits, including the Section 199 deduction, but would preserve the research credit. The corporate AMT would be repealed, but net operating loss (NOL) carryforwards would be limited to 90% of income, which is similar to the biggest current AMT restriction. In addition, NOLs could no longer be carried back, but could be carried forward indefinitely.

International taxes

The plan calls for a shift from a worldwide tax system to a territorial system in which offshore earnings could be repatriated tax free with a 100% dividends received deduction. To transition to the system and raise revenue, current repatriated earnings would be subject to a one-time tax of 8.75% for cash and cash equivalents, and 3.5% for other earnings. The plan also seeks to repeal the subpart F rules.

In addition, Republicans are seeking to make the tax "border adjustable." This means no tax would be imposed on income from exporting products, services and intangibles. The World Trade Organization (WTO) generally allows export tax exceptions only for indirect taxes like value added taxes (VATs) and bars them for direct taxes like income taxes.

The report claims its business tax system would be considered an allowable indirect tax under the WTO rules. Although the low tax rates on investment income and cash flow elements of the plan make it somewhat analogous to a consumption tax like a VAT from an economic perspective, it is far from clear whether it could be considered an indirect tax under WTO rules.  

Tax administration

Republicans assert that the plan would simplify taxes enough so that most people could file their returns on a postcard. They propose remaking the IRS into a service-focused organization with a new, independent "small claims court" to resolve disputes.


The report charges the Ways and Means Committee with developing the framework into actual legislative proposals that would be ready for enactment in 2017. But such an aggressive plan may be unlikely to be enacted as currently conceived. For one thing, the Republican Party is divided on tax reform.

Senate Finance Committee Chair Orrin Hatch, R-Utah, is focused on a proposal for corporate integration that does not fit easily into the House tax reform framework. The House plan also diverges significantly from the platform of Republican presidential candidate Donald Trump. Trump's plan includes sweeping rate cuts, but does not propose full business expensing. Trump's international plan is not a traditional territorial system, but instead would apply a very low universal business rate to worldwide income without deferral as a sort of global minimum tax. For an analysis of the tax platforms of the presidential candidates, see our side-by-side comparison.

In addition, even if Republicans regain the White House and retain both chambers of Congress, they are not expected to get close to the 60 votes needed in the Senate to overcome procedural hurdles. The most likely avenue for tax reform remains a bipartisan compromise. Still, the framework is a very good indicator of where Republican leaders like Ryan will seek to drive tax policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.