Throughout Trump’s presidential campaign, he promised to provide tax relief for middle class Americans, simplify the tax code, and economic growth and job creation.
Today, the proposed changes focus on strong reductions in both individual and corporate income tax rates, reducing the number of individual income tax brackets to three — 10 percent, 25 percent and 35 percent — and easing the tax burden on most Americans.
The reform also calls for eliminating the estate tax and alternative minimum tax (AMT), taxation of corporate earnings on a territorial basis, as well as a plan to include a special one-time tax to entice companies to repatriate cash that they are parking overseas.
Baker Botts’ Firmwide Tax Chair and partner, Richard Husseini notes, “President Trump’s tax plan represents transformational change. Implementation will require, among other things, detailed and complex transitional rules. For many taxpayers, these transitional rules will almost be as important as the underlying changes to the tax code.”
“The enactment of a reduced corporate tax rate, combined with the move to a territorial tax system, would put US multinationals on more equal, if not better, footing relative to multinationals based in other major countries around the world,” said Don Lonczak, Baker Botts Tax partner in Washington D.C.
“Enthusiasm may remain tempered, however, as long as uncertainty remains regarding the role that a destination-based consumption tax will play in any tax reform legislation, as well as the rate and mechanics of a one-time repatriation tax on accumulated offshore earnings. And, while these proposals would greatly reduce the number of pages of the tax code devoted to cross-border taxation, the time and resources dedicated to the IRS audit process will not necessarily see much savings under a territorial regime.” Mr. Lonczak further stated.
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