Small and family-operated business would be subject to a maximum tax of 25% on their income instead of the current individual income tax rate.
If the tax rate on company profits in the United States is reduced to below 25%, it may be necessary to examine from the German perspective whether the CFC rules of the Foreign Taxation Act would be triggered by an investment in companies in the United States.
To boost the US economy, for a period of at least five years, expenses for new investments will be able to be amortized immediately. Furthermore, a territorial system is to be introduced, whereby US companies will have to pay taxes on their profits generated in the US. Arrangements to safeguard the US assessment base are still to be drawn up. To eliminate incentives to avoid taxation of foreign profits distributed to the USA, such profits are to be subject to a one-time taxation at a low tax rate, with a distinction made between illiquid assets and liquid assets.
The tax rate for personal income taxation, which currently has seven levels from 10% to 39.6%, is to be reduced to three levels (10%, 25% and 35%). The standard deduction for individuals and married couples is to be raised from the current USD 6,350 and USD 12,700, respectively, to USD 12,000 and USD 24,000, respectively. The alternative minimum tax (AMT) is also to be eliminated. This currently provides for an alternative basis for a higher taxable income, which is subject to a lower tax rate (28%).
The details of the tax reform are to be decided by the proper committees of the US House of Representatives and the US Senate. The counter-financing of the reform plans will also have to be clarified.