24 June 2016

House GOP Releases Tax Reform Plan

Today, House Speaker Paul Ryan (R-WI) unveiled a blueprint that outlines a tax reform plan. It’s a mixed bag.

Here are some important highlights of the plan:

  • Eliminates all deductions except the charitable and mortgage interest deductions, but we expect changes to make the two deductions “more effective and efficient,” though it’s unclear how they would change;
  • Expands the standard deduction, which would reduce the number of people who itemize their deductions to nearly 5 percent, from the current one-third;
  • Condenses the current seven individual brackets into three: 33 percent being the top rate, followed by 25 percent and 12 percent;
  • Reduces the corporate rate to 20 percent;
  • Creates a new business tax rate for pass-through companies, like partnerships and LLCs, of 25 percent.  Under current law, this income is taxed as high as 39.6 percent.
  • Reduces tax on capital gains, dividends and interest by allowing individuals to deduct 50 percent of this investment income, which means rates of 6 percent, 12.5 percent and 16.5 percent on investment income depending on the individual’s tax bracket; and
  • Eliminates the estate tax.

On the one hand, this plan contemplates changes to the charitable deduction and given the context in which these changes are discussed, we don’t expect all these changes to be positive. However, lower tax rates mean more money in donors’ pockets, and thus more money to donate.

The Ways and Means Committee will take the next step and put details around this blueprint. That’s where we come in. Over the next several months we’ll be working with the House to make the case to preserve the full scope and value of the charitable deduction, or get as close as possible. We’ll also continue to work with staff on our private foundation excise tax and donor-advised fund provisions by seeking cosponsors on the House and Senate bills.