US President Donald Trump and the Republican Party issued a tax-reform “framework” plan on September 27. It’s only nine pages long, so we don’t yet have full details, and it has yet to be enacted. Given that, what’s in store for US businesses, US olim and everyone else? Business taxation The framework proposes to limit the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25%. The framework contemplates measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.The framework reduces the corporate tax rate to 20%, which is below the 22.5% claimed average of the industrialized world.[email protected]In addition, it aims to eliminate the corporate alternative minimum tax (AMT).The framework proposes to let businesses to immediately write off (or “expense”) the cost of new investments in depreciable assets other than structures (not defined) made after September 27, 2017, for at least five years.The deduction for net interest expense incurred by C corporations would be partially limited.Because of the framework’s substantial rate reduction for all businesses, the current-law 9% domestic manufacturing and production (“section 199”) deduction would no longer be necessary. In addition, numerous other special exclusions and deductions would be repealed or restricted. The framework would preserve business credits for research and development (R&D) and low-income housing.International taxation The framework proposes to end the perceived incentive to keep foreign profits offshore by exempting them when they are repatriated to the United States. It would replace the existing “outdated” worldwide tax system with a 100% exemption for dividends from non-US subsidiaries (in which the US parent owns at least a 10% stake). Presumably that would apply to dividends from Israeli subsidiaries.To transition to this new system (apparently rapidly), the framework would treat foreign earnings that have accumulated overseas under the old system as repatriated. Accumulated foreign earnings held in illiquid assets will be subject to a lower tax rate than foreign earnings held in cash or cash equivalents. Payment of the tax liability would be spread out over several years.Comment: If enacted, $2 trillion to $3t. of foreign earnings could soon be deemed to be repatriated to the US and taxed at the lower rate, whether they are repatriated or not. This may have a significant effect on the US dollar, the US budget, the US economy and other economies.To prevent companies from shifting profits to tax havens, the framework would include proposals to protect the US tax base by taxing at a reduced rate and on a global basis the foreign profits of US multinational corporations. The committees will incorporate rules to level the playing field between US-headquartered parent companies and foreign-headquartered parent companies.Comment: This sounds contradictory to the 100% exemption for dividends from foreign subsidiaries. Time will tell what the drafters meant.Personal taxation To simplify US tax rules, the additional standard deduction and personal exemptions for the taxpayer and spouse would be consolidated into a larger standard deduction, according to the framework proposals.These changes would simplify tax filing and effectively create a larger “zero-tax bracket” by eliminating taxes on the first $24,000 of income earned by a married couple and $12,000 earned by a single individual. Under current US law, taxable income of individuals is subject to seven tax brackets. The framework aims to consolidate the current seven tax brackets into three brackets of 12%, 25% and 35%.An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers.The framework would increase the income levels at which the child tax credit begins to phase out.It is proposed to repeal AMT to reduce complexity.To simplify the tax code, the framework proposes to eliminate most itemized deductions, but it would retain US tax incentives for home-mortgage interest and charitable contributions.The framework proposes to retain tax benefits that encourage work, higher education and retirement security.Estate taxation The framework would repeal the estate tax upon death and the generation-skipping transfer tax.More comments: The framework is a set of general proposals, not yet published in legal English. It remains to be seen what will be enacted and when.On the corporate side, some think that businesses will locate to the US for the 20%-25% tax rate on profits. We doubt this since the regular Israeli corporate tax rate will be 23% in 2018, and lower Israeli rates (6%-16%) are possible for “preferred enterprises” in tech or industry. We believe the US reform would merely discourage US businesses from uprooting out of the US.On the personal side, the proposed repeal of estate tax will be welcomed. Trump’s preelection platform called for the introduction of a capital-gains tax instead; this is not mentioned in the latest framework proposals.As always, consult experienced tax advisers in each country at an early stage in specific cases.