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True Alert: A Framework for Tax Reform

By: John P. Bennecke John V. Aksak Michael Chen Ross J. Valenza |

For the past several months, the “Big Six”—Secretary of the Treasury Mnuchin, National Economic Council Director Cohn, Senate Majority Leader McConnell (R-KY), Senate Finance Committee Chair Hatch (R-UT), House Majority Leader Ryan (R-WI), and House Ways & Means Committee Chair Brady (R-TX)—have been meeting to outline a framework for tax reform. On September 27, 2017, they released their “Unified Framework for Fixing Our Broken Tax Code.”

The key principles at the heart of the Framework are simplification, tax reduction for individuals and businesses, and repatriation of business earnings currently kept offshore. The proposals outline extensive changes to the taxation of both domestic and international business, as well as to the taxation of individuals.


The Framework contains numerous proposals to modify the taxation of corporations:

  • It proposes reducing the corporate tax rate to 20 percent, while eliminating the corporate alternative minimum tax.
  • It suggests that Congressional committees may consider corporate integration—that is, reducing the effect of taxing corporate earnings at both the corporate and shareholder levels.
  • The deduction for interest expense by corporations would be limited in some unspecified manner.

For flow-through entities (S corporations and partnerships), the maximum tax rate would be capped at 25 percent. The Framework anticipates that Congress will adopt unspecified measures to prevent conversion of higher-rate personal income into low-taxed business income. Congress may also consider imposing limits on the deduction of interest paid by non-corporate taxpayers.

Other provisions would apply to all types of businesses:

  • Investment in depreciable assets (other than buildings) placed in service after September 27, 2017, will be expensed (i.e., deducted in full) for at least five years.
  • The deduction for domestic manufacturing currently contained in section 199 of the Code would be repealed and other (unspecified) deductions and exclusions would be repealed or limited.
  • Tax credits for research and development and low-income housing would remain, although other business credits could be eliminated if necessary to meet budget targets.
  • The Framework also indicates that special tax regimes applicable to specific industries and sectors would be “modernized” to better reflect economic reality and reduce the opportunity for tax avoidance.


The Framework makes a fundamental change in the international tax system by shifting to a territorial system: it provides a 100 percent exemption for dividends from foreign subsidiaries that are at least 10 percent owned by a U.S. parent corporation. Accumulated earnings are deemed to have been repatriated and taxed under a two-tier system: cash and cash equivalents would be taxed at an unspecified rate, while earning held in illiquid assets would be subject to a lower (also unspecified) tax rate. This “repatriation tax” would be spread out over an undetermined number of years. The Framework also directs Congress to enact rules to protect the U.S. tax base by combating tax arbitrage and inversions.


The Framework’s list of reforms for individual taxpayers is shorter, though similarly significant:

  • It reduces the number of tax brackets for individuals from seven to three, with a top rate of 35 percent (although it allows Congress to implement an additional top rate to apply to the highest-income taxpayers).
  • The Framework nearly doubles the standard deduction while eliminating personal exemptions and most itemized deductions (including the deduction for state and local taxes); it retains only deductions for mortgage interest and charitable contributions.
  • It repeals the individual AMT and the estate and generation-skipping transfer taxes.

The Framework leaves it to Congress to develop additional measures to reduce the tax burden on the middle class, simplify the treatment of retirement benefits while increasing participation in retirement plans, and repeal numerous other unspecified deductions, credits, and exemptions.


As the above discussion indicates, the Framework leaves many important questions unanswered and delegates the details that will make or break tax reform legislation to Congress. The Republican Congressional majority is expected to avoid a Democratic filibuster by including tax reform legislation as part of the budget reconciliation process. But this process imposes severe budgetary restraints on tax reform: it must be revenue-neutral after ten years. While the Framework contains numerous tax cuts, it leaves it to Congress to find the necessary offsetting revenue raisers. This should make for an interesting legislative process in the coming months.


The Framework continues the process that began in the summer of 2016 with the House Republican Blueprint for Tax Reform while adding focus to vague principles subsequently advanced by the Administration. Nevertheless, many important gaps and questions remain. Businesses should continue to monitor the legislative process and be prepared to consider options to stay ahead of the curve: planning should begin now!


True Partners Consulting’s corporate and international tax teams offer a combination of highly experienced tax advisors and an approach that puts our clients at a competitive advantage. We are prepared to work closely with clients to identify opportunities and to develop successful strategies to avoid the inevitable pitfalls that come with a once-in-a-generation tax reform package.