We’ve been waiting over a year for an update to the “Better Way” tax reform blueprint. On September 27, President Trump and GOP lawmakers released the “Unified Framework for Fixing Our Broken Tax Code.” This nine-page update is designed to serve as a template for congressional efforts to simplify the tax code and grow the U.S. economy. Unfortunately, the framework provides only limited details and faces an uphill battle to gain bipartisan support. Here is what’s currently on the negotiating table for individuals and estates.

For Individuals

The framework strives to provide relief to lower- and middle-income families by allowing them to keep more of their hard-earned paychecks. Specifically, it would reduce the number of tax brackets from seven to three (12%, 25% and 35%). Although the template doesn’t specify income levels for those brackets, it would allow flexibility for lawmakers to introduce a higher tax rate for the wealthiest individuals, ensuring that the new tax code is just as progressive as the current rules.

The proposed plan would eliminate all personal exemptions and essentially double the standard deduction to $12,000 for individuals and $24,000 for married couples. It would also significantly increase the child tax credit and the income levels at which that credit is phased out — but it doesn’t provide specifics about these amounts. The template also calls for a $500 nonrefundable credit to defray the costs of caring for disabled relatives, elderly parents and other nonchild dependents.

In addition, the alternative minimum tax (AMT), along with many itemized deductions, are on the chopping block in the proposed plan. But the template retains certain provisions that preserve socially desirable goals, such as itemized deductions for mortgage interest and charitable contributions, as well as tax benefits for higher education- and retirement-savings programs.

For Estates

Currently, the tax code provides a lifetime gift and estate tax exemption of $5.49 million for each individual and $10.98 million for a married couple. Moreover, if the estate of the first spouse to die doesn’t utilize the full estate tax exemption, the remainder may be used by the surviving spouse’s estate under the “portability” provision. Today’s top gift and estate tax rate is 40%, but not many estates are large enough to trigger any tax liability. In addition, the basis of assets transferred at death is “stepped up” to the assets’ current fair market values.

The framework would repeal the death tax and the generation-skipping transfer tax. However, this could be a double-edged sword: The framework would also eliminate the current step-up in the basis of assets. If that happens, people who inherit assets could incur substantial capital gains when those assets are eventually sold.

Work in Progress

The GOP framework potentially brings us a step closer to a simpler, more taxpayer-friendly tax code. But congressional tax-writing committees still have many details to work through, including when the changes will go into effect. A day after this framework was unveiled, the White House announced that it wants tax reform to go into effect retroactively on January 1, 2017. If that happens, year-end tax planning will require ongoing diligence. Contact us for assistance; we’ll keep you informed as more details unfold.

It’s important to remember that this framework is proposed — any tax reform legislation that’s eventually passed by Congress will be the result of extensive negotiations and may wind up looking markedly different.