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President Trump’s FY 2018 Tax Reform Proposals

Since taking office in January, President Trump has called for comprehensive tax reform. The President’s recently released fiscal year (FY) 2018 budget outlines some of his key tax reform principles. At the same time, White House officials said that more tax reform details will be released in coming weeks. These details are expected to describe rate cuts for individuals and businesses, new incentives for child and elder care, elimination of certain deductions and credits, and more.

Tax measures
The President’s FY 2018 budget highlights a number of tax reform proposals, leaving details for later. The President called for tax reform that lowers individual tax rates, expands the standard deduction, and protects homeownership, charitable giving and retirement saving. The FY 2018 budget also urges Congress to repeal the alternative minimum tax (AMT), the federal estate tax, and the net investment income (NII) tax. The President’s FY 2018 budget also highlights some business tax proposals, including lower rates for corporations and other business entities. To offset the cost of lower rates, unspecified business tax expenditures would be repealed.

Note. Federal law requires that every budget list all tax expenditures. Generally, a tax expenditure is any item that causes a loss of revenue due to a special exclusion, exemption, or deduction from gross income, a special credit, a preferential rate of tax, or a deferral of tax liability. The FY 2018 budget lists more than 160 tax expenditures.

Health care and taxes
The Affordable Care Act (ACA) created the NII tax and a number of other new taxes. The President’s budget assumes the ACA will be repealed and replaced with the American Health Care Act (AHCA). As passed by the House in April, the ACHA repeals the NII tax, the additional Medicare tax, the excise tax on medical devices, and more. The Senate is currently debating the AHCA.

Funding the IRS
Earlier this year, President Trump proposed to reduce the IRS’s funding and this is reflected in the FY 2018 budget. However, in past years, Congress has restored some of the proposed funding cuts to the IRS. Last year, Congress gave the IRS an additional $290 million with instructions to use the funds for taxpayer services and to curb tax-related identity theft. Additionally, President Trump proposed giving the IRS more authority to correct errors on taxpayer returns. The FY 2018 budget also urges Congress to expressly grant the IRS authority to regulate return preparers.

Family leave
President Trump also proposed to create a new benefit within the Unemployment Insurance (UI) program. This new benefit would provide up to six weeks paid leave to mothers, fathers, and adoptive parents.

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