Trump’s Income Tax Reform Just around the Corner
Donald Trump has announced that he will begin a major overhaul of the United States tax system as soon as he takes office on January 20th. He maintains that the changes he is suggesting will simplify the tax code, provide tax relief to American taxpayers and benefit the economy by making condition’s more favorable for businesses. According to his plan, these changes will be revenue neutral. They will be paid for by certain other changes to the tax code which will actually increase tax revenue. In particular, his proposal recommends eliminating many of the deductions that are currently available to high income taxpayers as well as closing a number of corporate tax loopholes.
The following are some of the major changes proposed by Trump’s tax plan:
· Simplifying the tax code for individuals
Trump’s tax plan outlines a simpler tax code by proposing that the number of tax brackets be reduced to four (0%, 10%, 20% and 25%) instead of seven. Individuals earning less than $25,000 and couples earning less than $50,000 would not pay any tax at all, with the net result that over 50% of the population would effectively be removed from all income tax obligations. Taxpayers paying the 10% income tax rate would keep almost all of their current deductions while those in the 20% and 25% brackets would lose some of theirs. In addition to simplifying tax brackets and eliminating deductions, Trump’s tax plan proposes terminating both the Alternative Minimum Tax and the marriage penalty.
· Eliminating of the death tax
Under current estate tax laws, individual estates in excess of $5,490,000 are subject to taxation with a maximum estate tax rate of 40% when the amount of the taxable estate exceeds $1,000,000. Under Trump’s tax plan, the estate tax will be eliminated altogether.
· Making the tax code more attractive for business
One of the main components of Trump’s tax plan is to make America more attractive to business by reducing the corporate income tax rate to 15%, a significant reduction from its current rate of over 35%. In addition, it proposes providing pass-through entities with a matching rate by intoducing a special business tax rate within the tax guidelines for personal tax returns. Owners of partnerships, LLCs and certain other business structures are currently taxed at their personal income tax rates which are often in excess of 15%.
· Eliminating certain loopholes and deductions
A final important part of Trump’s tax plan involves generating income tax revenue by eliminating certain tax loopholes and deductions for wealthy taxpayers and special interests. Included in this list of suggested changes is decreasing the income threshold for the Pease Limitation on itemized deductions and the phase out of personal exemptions and phasing out the life insurance interest deduction for wealthy taxpayers. The proposal also recommends putting a cap on interest deductions for business expenses as well ending tax deferrals for corporate income earned on foreign soil.
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