September 27, 2017
by Dean Zerbe, former Senior Counsel to the U.S. Senate Finance Committee and alliantgroup National Managing Director

The Trump administration and the tax-writing committees released today their “Unified Framework For Fixing Our Broken Tax Code,” seeking to put more meat on the bone of tax reform. The framework is particularly important to give comfort to Republican policymakers as the Congress begins the first step of the two step process – first step: budget resolutions with reconciliation instructions; that leads to the second step: tax bill under reconciliation (only needs 50 votes in the Senate to pass – VP tiebreaker). Probably the biggest indicator that makes me think a tax bill is possible is recent rumblings that the Senate Republicans have reached an agreement on a number for tax cuts for a budget resolution ($1 to $1.5 trillion over ten years).

Credit to Chairmen Hatch (R-UT) and Brady (R-TX) as well as the administration for putting together a framework that will have many Americans nodding in agreement.


The framework starts with doubling the standard deduction to $24,000 for married and $12,000 for single. A nice tax relief for working families – and actual simplification of taxes for millions of households. The rates go from seven rates to three — 12/25/35%. But with a cryptic comment in the framework “an additional top rate may apply” to ensure basically that the distributional tables (the tax burden of each income group) remains unchanged. Four is the new three. Also, the framework states that there will be a more accurate measure of inflation for purposes of indexing tax brackets and “other tax parameters.” Hmmm.

The Lord Giveth . . . Additional tax relief for families includes a significant increase in the Child Tax Credit (but a repeal of the personal exemptions for dependents). The goal according to the framework is to make the credit available for more middle-income families and eliminate the marriage penalty in the credit. The framework proposes repealing the existing individual AMT.

The Lord Taketh . . . the proposal eliminates most itemized deductions (as well as casting a hard eye on other undislosed exemptions, deductions and credits). The exception from the choppers block are the home mortgage interest and charitable contributions (thank goodness that billionaires can continue to donate their overvalued art to their own personal museum).

Retirement – no discussion of Rothification of IRAs. Instead, basically — We “heart” retirement plans and worker participation. Death and generation-skipping transfer taxes are eliminated. Cue the teeth-gnashing and hair-pulling.


New maximum tax rate for business income of small and family-owned businesses (undefined) of 25%. The framework expects anti-abuse provisions to be put in place to prevent recharacterization of personal income into business income. No discussion of separating wheat and chaff – i.e. whether the new maximum tax rate for small/family businesses only applies to certain businesses or industries – yes, manufacturing; no, private equity.

Tax rate for corporations is put at 20% and elimination of the corporate AMT. I continue to believe the administration and Congress should consider tying a reduction in corporate rate to tangible real benefits to employees/workers – such as greater employee ownership, matching of IRAs, profit sharing and/or fully funding pensions. Americans need to see a more direct link to how the lower corporate rate is going to help everyone.

Expensing – continue to allow immediate write off of new investments in depreciable assets (other than buildings) for the next five years. Hand-in-hand with expensing – deductions for net interest expenses incurred by C corporations will be partially limited. Pass-thrus – the committee will consider the appropriate treatment of interest payments for pass-thrus.

The domestic production deduction (Section 199) is eliminated – citing the overall reduction in corporate rates. This was an expected tradeoff for the lower rates.

The framework does cite two business credits that will be kept in place – that are “proven to be effective in promoting policy goals important to the American economy” – the R&D tax credit and low-income housing. My hope is that the tax-writing committees will actually look to strengthen the R&D tax credit for companies that also manufacture in the U.S. – as proposed by Senators Roberts (R-KS) and Coons (D-DE).


As expected, the framework moves to a territorial system for taxation (ending worldwide taxation) – but treating foreign earnings that have accumulated overseas as being repatriated (big revenue raiser). Payments will be spread out over several years. The framework seeks to protect the U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations. For those interested – I continue to view the international reforms put forward by then-Chairman Dave Camp (R-MI) as a good early guide.

So what does it all mean? Is it going anywhere? Certainly pundits can be half-full or half-empty about the framework – but the real nut-crunching is with the numbers and scoring from the Joint Committee on Taxation which happens down the road. If the committees can keep a trillion to a trillion and a half over ten years to work with as a net tax cut number – I think they are in a good place to get much (not all) of what they are putting forward – which would be a big accomplishment and a potential for a real plus for economic growth, jobs and working families. My experience on the Finance Committee for nearly eight years working on some big, big bills – I found that it is easier to get policymakers comfortable with difficult choices when overall there are going to be a great deal more winners than losers. The budget resolution number matters.

The ACA-repeal journey certainly should caution. But, the failure to repeal ACA also serves to focus Republicans that they need to get a legislative victory – now. I had earlier written about the endless summer of tax reform when Secretary Mnuchin suggested they would have tax reform done by Summer (he didn’t say which Summer …). So we are in Fall. Congress needs to move the budget resolutions through and give the tax-writing committees set guidance on numbers. Keep your eye on those budget resolutions and the net tax number – that will be the big indicator of what is possible. Then the pencil-sharpening begins as Senators and Members of Congress see the real tradeoffs, costs and benefits of the different policy proposals. I have confidence with a good tax number for reconciliation the two capable Chairmen can make this happen. However, it will be a big lift to make it all happen before Santa loads his sled. If the bill can get to the President’s desk before the end of the year, I think at least some of the tax benefits would begin as of January 1 of this year. The more we go into the next year … the less likely it’s a bill providing tax relief for 2017.

sb-d-zerbe[1]Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington, D.C. office. Prior to joining alliantgroup, Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman of the Finance Committee, Senator Charles Grassley, on tax legislation. During his tenure on the Finance Committee, Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law, including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform) and the Pension Protection Act. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.

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