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Final GOP tax bill sets corporate rate at 21%, shifts to territorial tax system

The conference committee report for the congressional Republican tax plan sets the corporate tax rate at 21% from 35% while shifting to a tax system that does not impose a U.S. tax on profits earned abroad. It also includes base erosion rules to prevent companies from moving their profits to other countries.

The proposal would impose higher repatriation rates for illiquid and liquid assets than originally included in the House and Senate plans, with an 8% rate for illiquid assets and a 15.5% rate for liquid assets. The final proposal does not include a three-year holding period for carried interest that was originally included in plans from both chambers. The corporate alternative minimum tax is eliminated in the conference report.

The report also maintains 100% expensing for qualified property acquired after Sept. 27, 2017, through Dec. 31, 2022. The full expensing totally expires in 2028 and thereafter, with a transition period to phase out the expensing in the years 2023 through 2027.

Conferees settled on a 20% tax deduction for the first $315,000 of joint income earned by all S corporations, partnerships, LLCs and sole proprietorships. Above that threshold, taxpayers can deduct 20% of business profits, a projection that Republicans say caps those organizations' effective marginal tax rate at 29.6%.

The conference agreement also sets seven individual tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Single individuals and heads of households whose income is more than $500,000, and married individuals filing jointly and surviving spouses whose income is over $600,000, fall in the 37% bracket.

The final bill also repeals the Affordable Care Act's individual mandate requiring most Americans to have a basic level of health insurance.

The House and Senate are expected to vote on the measure during the week of Dec. 18.