When it comes to his Administration’s recent release of President Tump’s tax reform info, we’re convinced that it could change things for the country. Whether that change is good or bad will depend on whose ox gets gored. The tax reform information is only a one-page explanation at this point, with few details, but read on for eight highlights of the proposed changes.
Slashing business tax rates.
The plan so far calls for dramatically lowering the income tax rates for all types of businesses, whether they are large or small. The proposed income tax reforms would slash the business rate to 15%. The plan provided no information on how the Congress would offset the tax cut.
The plans also envision changing the individual income tax rates. Instead of the current seven levels (ranging from a floor of 10% and a high of 39.6%), the new law would encompass only three rates: 10%, 25%, and 35%. Again, no information provided on how Congress would offset the tax cut.
Eliminating the alternative minimum tax and the estate tax.
These are perennial favorites marked for elimination because they limit the deductions and other benefits available to the wealthy — like most of the individuals serving in the US Congress. We also know from the snippets of information released from his 2005 taxes, that President Trump paid $31 million in alternative minimum tax that year.
A gift to corporate America.
The suggested tax reforms reflect that corporations would not have to pay income tax on foreign income. They would also be able to choose — through a one-time special election — to bring cash back to the US that they have been holding overseas. So far no word on how much they can bring back or the return rate or whether the return would require productive investment of those dollars.
Double the Standard Deduction.
With regard to individual income taxes, the President proposes that the standard deduction double from its current rate. For a married couple, that would have the effect of eliminating the first $24,000 of income. On the other side of the ledger, the proposal would eliminate most deductions, such as state and local income taxes. At least at this point, the proposal leaves intact the home mortgage deduction, charitable deductions, and does not tinker with 401(k) plan contributions, treated as non-taxable income under the current laws.
The cost of these changes.
Again, with so few details it’s difficult to project costs. The plan’s opponents say that, potentially, the anticipated cost is in the ballpark of trillions of dollars. Opponents also say the proposal uses “magical thinking” and redistributes wealth from the lower-income levels upwards to the rich, only parading as tax reform.
Of course, the proponents argue that the growth in the economy plus the savings from elimination of tax deductions will pay whatever the cost is.
You will hear people in both parties in Congress disagree on the potential to pay for such steep changes from economic growth.
Help with childcare costs.
The one-page description of the tax reform proposal mentioned the President’s support for providing help with child care costs but included no details. We will have to wait for details to see whether the “help” inures to the benefit of the lower-and middle-income levels or only the top 1%.
Ending Affordable Care Act’s 3.8% tax on investment income.
In addition to rolling back this tax, Trump’s plan would also reinstate the Capital Gains Tax to 20%.
To talk more about this, or anything else, please contact us. We want to help you navigate your way through all your tax questions.