President Trump outlined his plan yesterday for fundamentally rewriting federal tax regulations, an overhaul he praised as a boon to consumers and businesses alike. The proposal was presented in broad terms, far shorter on details than it was on general principles. But included were specific measures with profound implications for the restaurant industry.
Here are six.
1. Rolling back rates for S-type corporations
Small businesses owned by a single proprietor, a classification that covers many restaurants, file as S-type corporations. Their tax rate is currently at 35%. Trump’s plan calls for dropping that rate to 25%.
2. Lower corporate rates overall
Larger restaurant businesses could get an even bigger break. The highest taxation rate for corporations would be lowered to 20%.
3. Big breaks on equipment updates
As a means of jump-starting the economy, Trump’s package would allow companies that invest in new equipment to write off the expense in the same year they make the purchase, greatly accelerating the amortization. That break would run for five years. It would come at a time when many restaurants are looking to buy expensive new technology to improve operations and stay competitive.
4. Defanging the estate tax
The restaurant industry has been clamoring for decades to end or soften the so-called death tax, a stiff levy on businesses that pass from one generation of a family to the next as an inheritance. Often, the tax is so high that the enterprise has to be sold to meet that financial obligation.
Trump did not specify whether the estate tax would be scrapped or merely reduced. But he pledged, “We are not going to allow the death tax to steal away the American Dream from these great, great families.”
5. Recovery of overseas revenues
U.S. restaurant companies with overseas operations would be extricated from their dilemma of how to bring the revenues back into the country without paying a steep tax on the funds. Many find ways of keeping the dollars overseas, depriving the American economy of the proceeds.
Trump’s proposal calls for levying a one-time “low” tax on those offshore revenues. A specific rate was not mentioned.
6. More disposable income for consumers
The biggest impact of the tax overhaul could be a surge in consumers’ spending power. Trump proposed that individuals not pay any taxes on their first $12,000 of income ($24,000 for couples), an instant increase in their disposable income.
He also called for bigger credits for expenditures like child care, which again would leave a family with more spending power.
Less clear was the impact of reducing the number of tax brackets from seven to just three.
Economists and other analysts are poring over the proposal to gauge the impact. The plan was presented as a series of goals rather than a set piece of legislation, meaning much could change during the process of actually drafting a tax bill.
But the early indications won praise from the restaurant industry. “The National Restaurant Association applauds the tax reform framework released moments ago,” Cicely Simpson, executive vice president of public affairs for the National Restaurant Association, said yesterday in a statement. “We look forward to engaging with the president and Congress as the negotiations regarding tax reform continue.”