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  1. The House of Representatives recently released a tax reform plan.

    It’s the first comprehensive tax reform plan in decades.

  2. The number of personal tax brackets could be reduced.

    The plan calls for reducing the number of tax brackets from seven to three: 12 percent, 25 percent, and 35 percent. If needed, they may add an additional top rate for higher income earners. The bill does not indicate what income levels will fall within the new brackets, so depending on your income, you may end up in a higher bracket than you are in now. For example, taxpayers currently in the 10 percent bracket will have a 12 percent rate under the plan.

  3. Standard deductions could be increased for individuals and families.

    The bill calls for an increase in the standard deduction for tax filers who do not itemize their deductions. The new standard deductions would be $24,000 for married couples filing jointly and $12,000 for single filers, effectively creating a “zero tax bracket” for this income. The child tax credit could also increase, but the plan does not say by how much; and the Alternative Minimum Tax, which requires taxpayers to calculate their taxes twice, could be repealed.

  4. There could be fewer itemized deductions on personal tax returns.

    Most of the itemized deductions available under the code could be eliminated, such as the state and local tax deduction, but the deductions for mortgage interest and the charitable contributions could be retained. It is believed that with the increased standard deduction fewer taxpayers will opt to itemize. The bill could also retain certain tax benefits for education and retirement, and repeal the estate tax.

  5. Standard business tax rates could decrease.

    The corporate tax rate could be reduced from 35 to 20 percent. This would put the U.S. at just below the OECD average, making our industries more competitive globally and removing the incentive for U.S. companies to incorporate overseas. Small businesses and so-called “pass-through” entities could be taxed at 25 percent. These businesses are currently taxed at the business owner’s individual tax rate.

  6. Businesses would be able to write off more assets.

    To foster more capital investment in the U.S., the administration’s plan would allow businesses to write off 100 percent of the cost of depreciable asset purchases, excluding land and structures, in the year they are made. This incentive would be available for at least five years. This provision would likely be a benefit to ConocoPhillips and other independent oil and gas companies. We already expense 100 percent of our intangible drilling costs (IDCs - primarily labor costs) in the first year. This proposal would allow us to expense our investment in tangible assets as well. Expensing increases the amount of cash we have available for additional investment and gets that cash back to us earlier than the normal capital depreciation schedules allow.

  7. Business tax provisions could be repealed.

    The plan also calls for the elimination of a variety of business deductions and credits except those relating to research and development and low-income housing. The lower corporate rate makes some of these unnecessary.

  8. The system could move from a worldwide tax system to a territorial tax regime.

    Currently, all U.S. multinational companies are subject to U.S. tax on their global earnings regardless of where in the world they were generated. The tax is levied when foreign earnings are repatriated, or brought back, to the U.S. Other nations do not tax their multinational companies in this manner, they use a territorial tax regime. Under that system, a French headquartered company pays French tax on its earnings generated in France, but does not pay French taxes on earnings generated outside of France.

  9. Passing tax reform will be a challenge.

    Enacting comprehensive tax reform legislation – or any legislation, really – will be extremely difficult. The White House and congressional Republicans hope to complete the work by the end of the year. That’s a very aggressive time frame and it is likely that it will slip for a number of reasons. First, before any tax reform bill can pass, the House and Senate need to approve a budget resolution. The resolution will contain special rules that will allow the Senate to pass a bill by a simple 51-vote majority, without a filibuster. The House and Senate will each pass their own versions of tax reform and those versions will need to be reconciled in a conference committee, which means that it is quite possible that the final legislation will not look exactly as the plan describes it.

  10. Power in Cooperation will help keep you informed.

    As the discussion on tax reform unfolds, we will keep you advised on how things are progressing and the potential impacts that the changes might have on businesses and families.