1. 2017 Tax Reform Proposals -- Select Attributes
Michael J. Tuchman

2. 2017 TAX REFORM PROPOSALS – SELECT ATTRIBUTES
TRUMP TAX PLAN1
HOUSE REPUBLICAN TAX REFORM PLAN2
Ordinary Rates (individual)
Max 33% (over $225k joint). Earlier Trump proposal at 25%.
Max 33% (over $441k joint).
Capital Gain/Dividend Rate
Max 20%.
50% exclusion (only half is taxed – 16.5% effective rate).
Business Income Tax Rate
New 15% corporate rate (now 35%).
The 15% rate would also apply to all business income from sole proprietorships and pass- throughs. For “small businesses,” the 15% tax is “in lieu” of individual taxes. Otherwise it appears that distributed income will also be taxed at the 20% dividend rate (a combined 35% rate).
Would real estate be a pass-through business? Unclear.
New 20% corporate rate (now 35%).
Tax “active” business income from pass- throughs at a maximum rate of 25%. This appears to be a true “in lieu” tax. There would be a reasonable compensation requirement for business income to identify the compensation component of business income that should be taxed at ordinary rates.
Would real estate be an active pass-through business? Unclear.
Taxes Repealed
3.8% investment income surtax (ACA).
AMT (individual / corporate).
3.8% investment income surtax (ACA). Also repeals the 0.9% Medicare surtax.
Carried Interests
Taxed at ordinary rates (33%), but PE and hedge could qualify such income at the 15% rate on pass-through business income. Lack of clarity. Unclear generally, and unclear impact on real estate specifically.
Varying provisions. None most recently. But note the small delta between new active business pass-through income rate (25%) and current capital gains tax rate (20%) eliminates much of the incentive for gaming.
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1 October Proposals have varied dramatically over time. 2 July Proposals have varied dramatically over time.

3. HOUSE REPUBLICAN TAX REFORM PLAN
ATTRIBUTE
TRUMP TAX PLAN
HOUSE REPUBLICAN TAX REFORM PLAN
Other Attributes
Eliminate/cap business interest deductions.
Increased business expensing in lieu of depreciation.
Elimination of many corporate tax expenditures (incentives).
Increased individual standard deduction (to $30k joint).
Limits itemized deductions other than mortgage interest and charitable contributions.
1031?
Eliminate business interest deductions.
Increased individual standard deduction (to $24k joint).
Eliminates itemized deductions other than mortgage interest and charitable contributions.
Wealth Transfer Taxes
Repeal. Deemed sale treatment on capital gains of certain large estates (over $10 million joint).
Repeal. Carry-over basis with limited step-up for modest estates.
Tax Policy Center (Urban-Brookings Institute) Commentary on Trump Proposals
TPC notes that numerous assumptions have been made as plan detail is lacking.
Average household income tax reduction $3k, but skewed to highest earners. Average for top fifth is $16k; top 1% is $214k. Increased number of households paying no tax at all.
Reduced Federal revenues of $6.2 trillion over 10 years.
Substantial increases in deficits due to rate reductions ostensibly offset by increased tax revenues as a result of increased economic activity.
Dramatic spending cuts needed to modulate deficit (projected to increase $7 trillion over 10 years even with additional tax revenues).
Subject to deficit/inflation/interest rate risks, a significant plus for economic activity.