President Trump’s Future Tax PlanHayden Williams
President Trump is planning to embark on the largest tax-cutting reforms since the days of Reagan, but when listening to his speeches, the details are surprisingly scarce. Let’s have a look at what has been outlined so far –
Currently, there are seven different tax bands in the tax system, but under the new proposals, this would be slashed to just three. Those three would be 10, 25 and 35 percent. While this might seem like a great idea, it will come as little surprise to hear that those rates don’t quite tally with the manifesto pledges.
The headlines are that the top rate will increase from 33 percent to 35 percent, although the lower rate will drop from 12 to 10 percent. Unfortunately, one crucial piece of information is missing, and that is where each tax rate stops and starts.
Standard deductions look set to virtually double under Mr. Trump, which will no doubt be welcomed by everyone, except that once again the proposal falls short of what was published during the campaign trail.
Under the new plan, married couples would not pay any tax on their first $24,000 earned, which admittedly is an increase of nearly $6000. However, during the campaign, the proposals were to increase single filers deductions to $15,000 and married couples to $30,000. So, in reality, the proposals fall about $6000 short of what was initially promised.
Itemized deductions were another target in the firing line for Trump when he was trying to get elected. The original idea was to place an upper limit of $100,000 for single people and $200,000 for married couples filing jointedly. Under the simplified system, you guessed it; there is no longer any mention of tax caps, just an aim to eliminate or reduce tax breaks that unfairly benefit the wealthy. Certain breaks will remain untouched; these include giving to charity, mortgage interest, and retirement savings. If Trump’s administration gets its way though, state and local tax deductions would be eliminated.
The reason for this is quite simple, SALT deductions are a huge drain on government resources, with the estimate being about $96 BILLION in 2017 alone. Over the ten-year period, to 2026, this is estimated to cost over 1.3 TRILLION dollars, according to the Tax Policy Center, so the potential savings to be had are huge.
Reductions or elimination in SALT would affect over half of all taxpayers who earn north of $75,000. For those who earn over $200,000, the percentages are even higher at around 90 percent. The effect of eliminating SALT taxes would not be universal, however, with the most pain caused to those living in high taxation states.
What Would Happen To The Alternative Minimum Tax?
The Alternative Minimum Tax is another tax that the Trump administration wants to eliminate. When it was first designed it was aimed fairly and squarely at the higher earners, but it was never linked to inflation. Consequently, more and more families across the USA have found themselves caught in the tax bracket as their earnings have increased. The AMT requires wealthy taxpayers to calculate their tax liability twice, and then pay the higher amount. Ironically is the removal of the AMT for higher earners, may actually balance out any loss from the removal of the SALT, because higher rate earners are currently not able to claim the full benefits of SALT.
Capital Gains Tax
The Affordable Care Act created a 3.8 percent net income investment tax which is another tax that Trump is keen on eliminating. Getting rid of the net income investment tax would be a popular move amongst the wealthier people in society, as it would drop the effective capital gains tax rate for higher earners from 23.8 percent to a headline-grabbing 20 percent.
With this in mind, investors who are considering releasing any equity in either securities or property in 2017, might want to evaluate whether it might be a smart decision to delay the process. If the net income investment tax is eliminated, that could enable those people to benefit from lower tax bills simply by waiting a year.
As you can see the proposals that Trump has in mind are both significant and wide reaching. The question is will his administration be able to get these changes through Congress.