At the end last month the Trump team released a somewhat sketchy version of their proposed tax plan. Although it was only a single page summary and contained few specific details, the major bullet points of the proposal were quite clear. Outlined below are some of the major tax code changes contained in Trump’s tax plan:
1) Reduce the corporate income tax rate from 35% to 15%. This 15 % rate would also be made available to pass though entities such as partnerships and limited liability companies.
2) Reduce the top individual income tax rate form 39.6% to 35%.
3) Simplify the tax code for individual filers by reducing the number of individual income tax brackets from seven to three – 10%, 25% and 35%.
4) Eliminate the 3.8% Net Investment Income Tax that is imposed on certain types of passive income such as interest, dividends and capital gains for those taxpayers with adjusted gross incomes above certain threshold amounts.
5) Eliminate the Estate Tax which is currently levied on individual estates in excess of $5.5 million dollars.
6) Eliminate the Alternative Minimum Tax.
7) Eliminate the federal income tax deduction for state and local income taxes.
8) Eliminate the ability of employers to exclude employer paid health insurance premiums from their taxable income.
9) Institute a territorial system of business taxation where companies would only pay taxes on profits earned in the continental United States.
10) Establish a tax holiday for the purpose of allowing companies to repatriate foreign cash reserves at a reduced tax rate.
11) Double the amount of the standard deduction
12) Eliminate most itemized deductions with the exception of the deductions for charitable contributions and home mortgage interest.
Although proponents of Trump’s tax plan say that it will more than pay for itself by encouraging business activity and expanding the economy, critics maintain that this is not the case. In fact, a group of analysts at the Tax policy Center recently released a statement claiming that the proposed plan would reduce federal tax revenues by more than six trillion dollars over the next decade. Secretary of the Treasury, Steven Mnuchin, countered this opinion with the assertion that the Trump tax proposal will have the overall effect of lowering the ratio of debt to gross domestic product by stimulating the growth of the economy. Only time will tell which portions of this tax proposal are actually put into action and what effect they will have.
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