9 Key Talking Points in Trump’s New Tax Planby
As advertised, President Trump’s revised tax reform plan was rolled out on April 26, but not by the president himself. That honor was left to Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn at a White House press briefing.
The plan leaves plenty of blanks to be filled in later this year, but much of what was said sounds familiar to promises made on the campaign trail and during the president’s first few months in office.
Keeping that in mind, here are nine key proposals that form the core of the White House’s tax reform agenda:
1. Individual tax cuts. Once again, President Trump has proposed a three-tier system to replace the current seven-bracket setup. This time, the president has proposed rates of 10 percent, 25 percent, and 35 percent. During his campaign, Trump had considered rates of 12 percent, 25 percent, and 33 percent.
Currently, the bottom rate is 10 percent, while the top rate is 39.6 percent.
2. Standard deduction. For 2017, the standard deduction is $6,350 for single filers and $12,700 for joint filers. Trump’s goal is to double these amounts going forward. That would provide a big boost to lower-to-middle-income filers who don’t itemize deductions.
3. Itemized deductions. Trump plans to make good on prior threats to repeal all itemized deductions except those for charitable contributions and mortgage interest. That could, however, be damaging to residents in states where property taxes and state and local income taxes are high. Expect some pushback from lawmakers in those jurisdictions.
4. Corporate tax rates. Individuals would not be the only ones benefiting from tax rate cuts. The president’s tax reform plan has long included reducing the top corporate rate from 35 percent to 15 percent. Not surprisingly, business leaders completely support this proposed change.
5. Estate tax. Repealing the federal estate tax once and for all is another longtime objective of Trump’s and many GOP members in Congress. (If you recall, the estate tax vanished in 2010, but only for one year.) Critics of a repeal complain that it benefits the super-rich, such as some of the president’s cronies, but hardly anyone else.
6. Alternative minimum tax. The alternative minimum tax (AMT), a parallel tax system to regular income tax liability, is also in the crosshairs. The AMT generally affects upper-income taxpayers, although it can ambush other filers with substantial itemized deductions or personal exemptions. Trump wants to remove the AMT in the name of tax simplicity.
7. Net investment income tax. Certain upper-income taxpayers are liable for a 3.8 percent surtax on net investment income (NII). Typically, NII includes capital gains from securities sales and other investment income items. This tax was authorized by the Affordable Care Act, the healthcare law known as Obamacare. Regardless of whether Obamacare is repealed or not, Trump intends to eliminate the surtax.
8. Repatriation tax. Citing the need to curtail “tax inversions,” where US companies establish headquarters in foreign countries to avoid paying higher US corporate taxes, the president is calling for a one-time repatriation tax. This would result in taxation of approximately $2.6 trillion of profits earned overseas by US multinational corporations that were never added to Uncle Sam’s coffers.
9. Territorial tax system. Currently, US companies are taxed on all their profits, no matter where in the world the money is earned. Trump is now joining the ranks of Republicans who want to move to a territorial tax system for businesses. In other words, US companies would owe US tax only on what they earn within our own borders.
However, Trump isn’t siding just yet with House Republican leaders on the controversial border-adjustment tax. Under the proposal, exports would no longer be taxed, but then companies could not deduct the cost of imported goods.
Finally, other parts of Trump’s plan were not unveiled. For example, White House officials are still developing the framework for an expanded child and dependent care credit. During the campaign, Trump floated several ideas on this issue, but they failed to generate much enthusiasm.
What are the chances that most or all of these proposals will be enacted? There is guarded optimism in the president’s camp, but naturally, Democrats are gearing up for a fight.
Suffice it to say, tax reform isn’t a done deal – not by a long shot.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...