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US House panel proposes 20% corporate tax rate

Ways and Means Committee releases tax reform bill.

The Ways and Means Committee of the US House of Representatives has released the text of its long-awaited tax reform bill.

“The release of proposed House legislation today is a big step toward historic tax reform that significantly lowers the corporate tax rate and moves us toward a territorial system,” Kate Barton, EY Americas Vice Chair of Tax Services, said in a statement. “By the time Thanksgiving comes around, let’s hope we’re giving thanks for passage of a tax reform bill that is designed to make the US more competitive in the fight for new investment and new jobs.”

Barton cautioned, “However, before anyone celebrates, every business must determine how the provisions in the draft will affect their tax bill and their current ways of doing business.

“For example, companies must model how much they will save in taxes with a lower tax rate versus how much more they will have to pay because of lost deductions. They will want to consider how much would they owe under a minimum tax on foreign earnings, how would the anti-base erosion provisions apply to their supply chains and capital structures, and what will they do differently if foreign earnings can be repatriated with no additional US tax? Though many will be thankful for today’s progress on tax reform, whether it is a happy new year will depend on a deep understanding of the specific effects of a very complicated reform package.”

Key business provisions of the bill include:

  • Reducing the 35% corporate income tax rate to 20% beginning in 2018 and repealing the corporate alternative minimum tax (AMT), also beginning in 2018
  • Modifying the current worldwide taxation system to exempt from US tax dividends from foreign subsidiaries paid out of foreign earnings but to tax on a current basis under anti-base erosion provisions and modifications to subpart F potentially significant amounts of foreign income  
  • Imposing a one-time 12% tax on accumulated foreign earnings, reduced to 5% for illiquid assets
  • Allowing businesses to expense the cost of certain new property placed in service after September 27, 2017, and before January 1, 2023
  • Eliminating various deductions and credits, such as the Section 199 domestic production deduction, the work opportunity tax credit and the new markets tax credit (but not the research credit)
  • Limiting the tax rate applied to a portion of a pass-through entity’s business income to 25%

Key individual provisions of the bill include:

  • Replacing the seven income tax brackets for individual taxpayers with four rates of 12%, 25%, 35% and 39.6%
  • Repealing the individual AMT
  • Limiting deductibility of interest on new home mortgages of $500,000 or more and further limiting the exclusion of gain on the sale of principal residences
  • Repealing the estate tax in six years
  • Limiting the individual itemized deduction for state and local taxes to $10,000 in property taxes

Read more: US tax reform

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