Republican Tax Reform Bill Lacks Details
on Issues Affecting Community Banks
By Amanda Garnett
On September 27, 2017, the Trump administration and Anytaxchangesmadewilllikelybetemporary
Congressional GOP leaders unveiled their much-anticipated
Though Republicans have proposed making at least portions of
tax reform plan, the "Unified Framework for Fixing Our Broken
the tax reform plans retroactive to January 2017 to spur economic
Tax Code." This framework cuts corporate tax rates, lowers the
growth, given the recent challenges in Congress, we believe it is
individual tax brackets, changes tax deductions, and makes
unlikely that legislation will be finalized before year end.
sweeping changes to how S corporations would be taxed.
It is likely that the tax reform package will move in Congress under
At this time, the bill's framework remains a broad proposal and no
the reconciliation rules, which require only a simple majority in
formal legislation has been revealed. And as with earlier proposals
the Senate to pass. But under these rules, the tax cuts would likely
issued by President Trump in April 2017, the plan remains
sunset after 10 years. Though Republicans would certainly prefer
sparse on details. But as specifics continue to emerge, bankers
permanent reforms, Treasury Secretary Steven Mnuchin has said,
should consider the potential impact of these changes on their
"If we have it for 10 years, that's better than nothing." So the
organizations, as well as their customers.
long-term impact of lower tax rates and the repeal of the estate
tax will be difficult to predict.
Reducing the corporate tax rate to 20 percent
The Republican proposal would reduce the corporate tax rate
Lending considerations
from 35 percent to 20 percent and eliminate the alternative
Community banks have expressed concern about how their loan
minimum tax. The provisions would also affect how S corporation
portfolios may be affected by these proposals. Here's how the bill,
shareholders are taxed on pass-through income.
if passed, could affect areas of your community bank:
In addition, personal income tax brackets would be reduced,
Home mortgage interest
and many of the deductions currently available to individuals
Under the new proposals, most itemized deductions would be
would be eliminated. One important element yet to be
eliminated, including those for medical expenses, state and local
decided is how Republicans will pay for the proposed tax cuts.
income taxes, and property taxes, leaving taxpayers with the
ability to only itemize home mortgage interest and charitable
contributions. In addition, the framework includes a dramatic
Business Tax Reforms
Current
Proposed
increase in the standard deduction from $12,700 to $24,000 for
C corporation tax rate
35% maximum
20%
married couples filing jointly.
Corporate Alternative
20%
Repealed
According to IRS data, around 30 percent of households itemize
Minimum Tax (AMT)
their deductions today. With these proposed changes, we
S corporation pass-
Taxed at the shareholder's 25% maximum
anticipate that far fewer households would be able to itemize in
through rate
personal tax rate
the future. The inherent subsidy created historically by the home
mortgage interest deduction will effectively be eliminated for
Individual Tax Reforms
Current
Proposed
a large section of American families, especially for the middle-
Personal tax rates
7 brackets with a 39.6% 3 brackets with a 35%
class in parts of the country where home prices have remained
maximum rate
maximum rate
affordable. The impact of this change on home ownership and
Personal AMT
28%
Repealed
mortgage lending cannot be predicted, but it is certainly a risk
that banks should begin to consider.
Standard deduction
$6,350 single, $12,700
$12,000 single, $24,000
married filing jointly
married filing jointly
Businesses may begin searching for alternative financing
Personal exemption
$4,050 per taxpayer or
Eliminated
Addressed only briefly in the framework, Republicans have
dependent
proposed that the tax deduction for net interest expense incurred
Estate tax
Up to 40% on estates
Repealed
by C corporation businesses be eliminated. The framework leaves
over $5.49 million
open the opportunity to limit the deduction of interest paid by
non-corporate taxpayers.
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MBA News | November/December 2017 | www.minnbankers.com

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