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Republicans Unveil Tax Reform Overhaul

September 28, 2017

The framework represents the first step in tax reform.

The "Unified Tax Reform Framework" closely follows the Administration’s emphasis on job creation, housing, and infrastructure growth.

 

Of interest to tribal governments:

  • The framework keeps in place the Low-Income Housing Tax Credits (LIHTC), a program that provides the private market with incentives to invest in affordable housing. Although it is explicitly retained, Indian Country should continue to advocate for greater inclusion of LIHTC.
  • There are no changes to tax-exempt debt, which tribes rely on as a low-cost, efficient way to finance capital improvements and fund infrastructure. It is important for tribes to continue to drive towards finance parity in federal tax standards and requirements with states for governmental tax-exempt bond issuances (removing the essential government function test).
  • For at least five years, the plan allows an immediate write-off of the cost of investments in depreciable assets other than structures. The framework mentions the committee may continue to work on enhancing this area, which maintains the viability of Indian tribes and tribal citizen-owned businesses benefiting from using the accelerated depreciation program.
  • The framework “envisions the repeal of other business credits”, including the possibility of the New Markets Tax Credit Program and the renewable energy tax credits. However, it does leave a reasonable chance to argue for their continuation.
  • The framework encourages improving retirement plan effectiveness, which means that a tribal pension provision fix is still viable.

Of interest to tribal citizens:

  • The standard deduction doubles so more citizens may not have to go through the trouble of an itemized return.
  • The framework enhances the child tax credit so that the first $1,000 of the credit will be refundable and it provides a $500 credit for non-child dependents, such as adult care which is common in tribal communities.
  • While state and local tax deductions and most other itemized deductions are repealed, the home mortgage interest and charitable contributions are retained.
  • The framework retains tax benefits that encourage work (ex: earned income tax credit), higher education (ex: American opportunity tax credit), and retirement security (ex: 401ks and defined benefit plans).

 

Current law

Tax Reform Plan

Individuals

7 Brackets, 39.6% top marginal rate

3 Brackets, 12%, 25% and 35%

Small Businesses

Pay through the personal income tax

Creates a new rate of 25%

Corporate Income

35%

20%

 

Moving Forward

The release of the framework represents an important development in the drive for tax reform. The next crucial step for Indian Country is to advocate for inclusion.

 

As Congress attempts to gain support for the tax reform plan, some key economic policy considerations will be made:

  • Revenue Neutrality: Measurement impact of proposals on the federal budget and overall economy.
  • Distributional Neutrality: Idea that reform proposals should not result in a redistribution of tax burdens from one income to another.
  • Dynamic Revenue: Prediction of revenue gained or lost in the economy brought about by changes in fiscal policies.

Tax reform done right could yield savings to tribal governments and benefit individual tribal citizens. NAFOA supports the goals of simplification and structural improvements of the tax system and we will continue to encourage Congress to commit to tax parity among tribal and other governments.