The National Lumber and Building Material Dealers Association published the following report today on proposed changes to the federal tax code. It was written by Ben Gann, NLBMDA VP of legislative and political affairs:
Today, the Trump Administration, House Committee on Ways and Means, and Senate Committee on Finance released a framework that would make major changes to the federal tax code. Titled the Unified Framework for Fixing Our Broken Tax Code, the plan seeks to deliver fiscally responsible tax reform by broadening the tax base, closing loopholes and growing the economy.
President Trump is scheduled to start selling the tax reform plan this afternoon at an event in Indiana. A group known as the Big Six-House Speaker Paul Ryan (R-WI), House Ways and Means Committee Chairman Kevin Brady (R-TX), Senate Majority Leader Mitch McConnell (R-KY), Senate Finance Committee Chairman Orrin Hatch (R-UT), Treasury Secretary Steve Mnuchin, and White House Economic Adviser Gary Cohn--have been meeting for months in order to draft a plan that serves as a starting point in the negotiations.
Congressional Republicans are expected to use the budget reconciliation process as the legislative vehicle for tax reform. That would permit the Senate to bypass certain procedural hurdles and allow a simple majority to approve a tax overhaul package. Using reconciliation would require that at least some of the tax cuts lapse within 10 years to comply with the Byrd Rule, a Senate rule that prohibits budget reconciliation provisions increasing the deficit beyond 10 years.
Senators Bob Corker (R-TN) and Pat Toomey (R-PA), members of the Senate Budget Committee, have reached a verbal agreement on a budget resolution allowing up to $1.5 trillion in tax cuts over 10 years. The House and Senate must still pass a budget resolution for the upcoming fiscal year (2018) to serve as the tax reform vehicle. Some conservative House Republicans have complained that the budget resolution should do more to cut spending as part of tax reform.
NLBMDA is still evaluating the tax reform proposal and has not taken a position; however, the association remains committed to preserving the mortgage interest deduction and eliminating the estate tax. Below is a summary of plan provisions that are relevant to lumber dealers.
- Consolidates Personal Income Tax Brackets from Seven to Three - The three income tax brackets are 12%, 25%, and 35%. It also contains a potential fourth tax bracket for high-income taxpayers.
- Permanently Repeals the Estate Tax - Permanently repeals the estate tax and generation-skipping transfer tax. It also cuts the gift tax to 35% and maintains full step-up in basis.
- Increases the Standard Deduction - Approximately doubles the standard deduction. $12,000 for single filers. $24,000 for married couples filing jointly.
- Preserves the Mortgage Interest Deduction - The mortgage interest deduction is preserved. However, the increased standard deduction could cause fewer households to claim the mortgage interest deduction.
- Lowers Tax Rate for Small Businesses - Caps the income tax rate for pass-through entities at 25%, which is significantly lower than the top rate that these businesses pay today.
- Full "Expensing" of Capital Investments - Allows businesses to immediately write-off (or "expense") the cost of new investments other than structures for at least the next five years.
- Lowers Corporate Income Tax Rate - Reduces the corporate income tax rate to 20%. The average corporate tax rate for the industrialized world is 22.5%.
- Repeals the State and Local Tax (SALT) Deduction - Eliminates the itemized deductions for state and local taxes to help pay for the reduction in income tax rates.
- Retains the Net Interest Expense Deduction - Retains the business interest deduction for small businesses. The deduction for C corporations is partially limited.
Learn more about the NLBMDA here.