Photo credit: Gage Skidmore
President Donald Trump released his tax reform proposal. It deviated somewhat from what he proposed during the campaign and compared to other Republican candidates his plan then excited me the least. He also appears to have picked up some aspects of what Jeb Bush proposed in his tax plan. While this isn’t a radical change; it is an effort at simplifying the tax code which is much needed. Ultimately I would love to see the 16th Amendment repealed bringing the elimination of the income tax.
I’m not going to hold my breath waiting for that though.
So what does his plan accomplish?
There are fewer individual income tax brackets.
Currently, we have income tax brackets of 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.60 percent. President Trump’s tax plan would reduce that number to three – 10 percent, 25 percent, and 35 percent.
What isn’t know is where the income cutoff for single and married filers will be.
It (almost) doubles the standard deduction.
Currently, the standard deduction is $6,350 and $12,700 for a married couple filing jointly. Under Trump’s tax plan single filers will see their standard deduction jump to $12,600 and married couples filing jointly will see their standard deduction rise to $24,000.
I’m curious where the 10 percent bracket starts because married couples who together make $18,651 – $75,900 are in the 15 percent bracket. This change could represent a significant tax cut for lower middle-class families.
Where will the 25 percent bracket begin? Currently, it starts at $75,901 for married couples. If that remains the same, then those making less than $75,901 will see a massive tax cut.
Keeps home ownership and charitable giving deductions; eliminates “targeted tax breaks” for the wealthy.
Gary Cohn, Director of the National Economic Council, said during yesterday’s press briefing, “We’re going to eliminate most of the tax breaks that are mainly benefits to high-income individuals. Homeownership, charitable giving and retirement savings will be protected. But other tax benefits will be eliminated.”
I have to ask how this impacts those who are self-employed? Most middle-class folks don’t do much itemization unless they are self-employed and then it is vital. Depending on how much they make they could end up owing more.
Eliminates Alternative Minimum Tax, Estate (Death) Tax and lowers Capital Gains Tax
Cohn said:
Families in this country will also benefit from tax relief to help them with child and dependent care expenses. We are going to repeal the alternative minimum tax. The AMT creates significant complications and burdens which require taxpayers to do their taxes twice to see which is higher. That makes no sense, and we should have one simple tax code.
As we all know, job creation and economic growth is the top priority of the administration. Nothing drives economic growth like capital investment. Therefore, we are going to return the top capital gains tax rate and dividend rate to 20 percent, repealing the harmful 3.8 percent Obamacare tax on dividends and capital gains. That tax has been a direct hit on investment income and small business owners.
We’re going to repeal the death tax. The threat of being hit by the death tax leaves small business owners and farmers in this country to waste countless hours and resources on complicated estate planning to make sure their children aren’t hit with a huge tax when they die. No one wants to see their children have to sell the family business to pay an unfair tax.
Reduces the Corporate Income Tax
The Trump plan creates a corporate flat tax rate of 15 percent. This aspect is probably the most significant part of his plan. Currently, that rate is only available to businesses that make $50,000 or less. So the tax savings will be substantial for most companies.
Also for those businesses that operate overseas, it is a territorial tax system so only the money made in the United States is taxed to level the playing field for American businesses. The Trump plan includes a one-time tax on money parked overseas.
Treasury Secretary Steven Mnuchin said this, “will bring back trillions of dollars that are offshore to be invested here in the United States to purchase capital and to create jobs.”