The House Tax Reform Task Force has released a “blueprint” for future tax reform proposals. The House Ways and Means Committee plans to begin drafting legislation with a goal of legislative action in 2017. While the adoption of any of the proposals contained in the blueprint is uncertain, the blueprint likely will serve as a basis for negotiation if and when Congress takes up tax reform.
The blueprint reflects the elimination of all itemized deductions except the mortgage interest deduction and the charitable contribution deduction. The policy paper accompanying the release also states that the Committee on Ways and Means will develop options to ensure the tax code continues to encourage donations, while simplifying compliance and record-keeping and making the tax benefit effective and efficient.
The blueprint also includes proposals to change marginal rates for both corporate and individual income taxes. The current graduated corporate tax rates, which have a top marginal rate of 35%, would be replaced with a flat 20% rate. For individual taxpayers, the current brackets with 10% and 15% marginal tax rates would be combined into a 12% bracket; the current brackets with 25% and 28% marginal tax rates would be combined into a 25% bracket; and the current brackets with 33%, 35%, and 39.6% marginal tax rates would be combined into a 33% bracket. Because the reduction in a taxpayer's tax liability from a charitable contribution deduction generally is proportional to the taxpayer's marginal tax rate, these rate changes could reduce the incentives for charitable giving for some taxpayers, especially high-income taxpayers. The blueprint also proposes eliminating the estate tax and the generation-skipping transfer tax, which could reduce the incentive for charitable giving by bequest.