Last Friday, on June 24, 2016, House Ways & Means Chairman Kevin Brady (R-TX), flanked by his predecessor, Speaker of the House Paul Ryan (R-WI), announced what informally has been called the GOP’s “Blueprint for Tax Reform.” The official title of this ambitious proposal is “A Better Way: Our Vision for a Confident America.”
This proposal is intended to be the blueprint for a comprehensive tax reform bill that both Chairman Brady and Speaker Ryan are deeply committed to presenting in 2017. The Republican members of Ways and Means believe that the Blueprint will achieve 3 distinct goals:
- Create jobs and economic growth
- Make the tax code simpler, fairer and less burdensome
- Transform the IRS into a kinder, gentler, taxpayer focused agency.
The Blueprint calls for rebuilding the IRS into three core units: 1) individuals, 2) businesses, and 3) a quasi-small claims court, independent of the IRS, designed to permit routine tax disputes to be resolved quickly and inexpensively.
The proposal calls for reduction of Income Tax rates for all taxpayers, with just three different brackets for individuals at 12%, 25% and 33%. A 25% rate would apply to income generated by pass-through businesses, and a 20% rate would apply to C-corporations. The blueprint also calls for elimination of the Alternative Minimum Tax (“AMT”) and abolishment of the Estate Tax. Capital gains, dividends and interest income would be subject to a 50% exclusion, resulting in an effective tax rate of just 6%, 12.5% or 16.5%, depending upon the individual’s ordinary income tax bracket.
The authors espouse the aggressive goal of simplifying the Internal Revenue Code to the point that the average taxpayer could file his or her tax return on a postcard. The path to achieving this goal appears to be elimination of most deductions and exclusions in favor of larger, consolidated standard and personal exemptions. Businesses would be permitted claim an immediate expense of 100% of the cost of new tangible and intangible business investments, except for land.
The good news for those who take advantage of Section 1031, is that this section has not been singled out as a “pay-for” to cover the cost of the rate reductions and we know that many members of Ways and Means, both Republican and Democratic, are supportive of like-kind exchanges and are aware of the economic stimulus they provide.
The bad news is that there are no “pay-fors” identified in the Blueprint, and it has yet to be scored by the Joint Committee on Taxation. Many of the blanks are waiting to be filled in. To that end, Representatives Brady and Ryan have called for input. They intend to spend the next several months obtaining feedback, and working out the details.
Much more to come on this proposal. In the interim, make your voice heard. Contact your Senators and Representative, and let them know how important Section 1031 is, and that it should remain in the “new and improved” Internal Revenue Code.
Read the A Better Way Tax Policy Snapshot here.
Read the A Better Way Tax Policy Paper here.