On June 24, 2016, Speaker of the House Paul Ryan released the Republicans' tax reform plan entitled “A Better Way”. The tax reform plan consists of 6 parts with the tax plan being described as a “blueprint” for successful reform. A major item that is missing from the “blueprint” is the treatment of individuals residing and working abroad. This issue has been relegated to the House Ways and Means Committee for reform. Hopefully, this “blueprint” can be the start of meaningful tax reform in 2017.

Postcard Size Tax Return

A postcard size income tax return for most individuals is highlighted in the plan. This appears to have been lifted from the tax reform idea initiated by Steve Forbes when he ran for President some 20 years ago.

This obviously could not be used by expatriates but supposedly could be used by over 50% of United States citizens and residents.

Tax Bracket Reduction

Tax brackets would be reduced from 7 brackets to 3 brackets. Single individuals would pay a 12% tax on income ranging from zero to about $38,000, a 25% tax on income ranging from about $38,000 to about $190,000 and a 33% tax on income over $190,000. Married individuals would pay a 12% tax on income ranging from zero to about $75,000, a 25% tax on income ranging from about $75,000 to about $231,000 and a 33% tax on income over $231,000.

Standard deduction

The standard deduction along with the personal exemptions is merged into a bigger standard deduction that will be adjusted annually for inflation. The proposed “bigger” combined deduction will be: Single; $12,000; Single with child; $18,000; Married filing jointly; $24,000. The “blueprint” projects that 95% of individuals that file will now use the standard deduction

Investment income

Only 50% would be subject to income tax at regular tax rates.

Alternative Minimum Tax

The alternative minimum tax would be repealed

Self Employed Individuals/Small Businesses

 Active business income of sole proprietorships would be taxed at no more than 25% and some income taxed at 12%.

Estate Tax

The estate and generation-skipping transfer tax would be repealed.

Changes to the Internal Revenue Service

The Internal Revenue Service would be redesigned into three key units; the families and individuals unit, with a service focus; the business unit, staffed with experts to help small business and U.S.-based global businesses; and the small claims court unit, independent of the IRS, to resolve "routine disputes" quickly.

Health care

House Republicans have a 3 part plan for health care.

Repeal the Patient Protection and Affordable Care Act; Provide a tax credit to help individuals purchase health insurance; and Preserve employer-sponsored health insurance but cap the exclusion benefit for individuals: "To help lower the cost of coverage, the “blueprint” proposes to cap the exclusion at a level that would ensure job-based coverage continues unchanged for the vast majority of health insurance plans"

The “Blueprint” Delegates the Following to the House Ways and Means Committee

1. Improve the refundable aspect of the child tax credit to reduce fraud and erroneous overpayments

2. Reform the earned income tax credit to reduce fraud and erroneous overpayments and provide a more effective and efficient incentive to work

3. Consolidate education provisions to improve effectiveness and efficiency and to cover costs of college and vocational training. Such changes are to include a savings incentive such as 529 plans and tax relief for low- and middle-income families, such as with the American Opportunity tax credit

4. Eliminate most itemized deductions, but retain tax incentives for retirement savings

5. Evaluate options for making the current-law mortgage interest provision a more effective and efficient incentives for helping families achieve the dream of homeownership. The changes are not to affect individuals who currently itemize deductions and will not affect any existing mortgage or refinancing of that mortgage

6. Develop options to ensure the tax code continues to encourage charitable donations, while simplifying compliance and record-keeping and making the tax benefit effective and efficient.

7. Explore ways to promote savings using models similar to retirement plans, such as a Universal Savings Account.

8. Consolidate and reform the multiple different retirement savings provisions in the current tax code to provide effective and efficient incentives for savings and investment.

9. Consider the appropriate treatment of individuals living and working abroad in today's globally integrated economy.

10. Create appropriate transition rules to bridge from the old to the new system, considering input from stakeholders.

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (I) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own U.S. tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.