President Trump put forth his much anticipated tax reform plan in an effort to bring jobs back to the United States and spark economic growth. He is going to “seize this opportunity by leading the most significant tax reform legislation since 1986- and one of the biggest tax cuts in American history.” (www.whitehouse.gov) President Trump has three major tax reform priorities: corporate tax rates, individual tax rates and business tax rates. He outlined his proposals in a document named “2017 Tax Reform for Economic Growth and American Jobs” and “The Biggest Individual and Business Tax Cut in American History”. Although he has many areas he wants to change, no specific details have yet been released. Treasury Secretary Steven Mnuchin said the administration would like to, “ move as fast as we can and get this done this year.” (Paul Bonner www.journalofaccountancy.com)
President Trump’s ideas for tax change are as follows:
Corporate Tax Rates
- Cut the corporate income tax rate from 35% to 15% and extend it to S corporations, partnerships and entities taxed as partnerships
Individual Tax Rates
- Replace the seven graduated tiers of marginal rates with three tiers: 10%, 25% and 35%.
- Repeal the net investment income tax of 3.8% on unearned income taxpayers. This would double the standard deduction but it would limit itemized deductions to mortgage interest and charitable contributions
- Trump’s goal is to provide tax relief for families with child and dependent care expenses.
- End tax breaks that benefit the wealthy taxpayers
Business Tax Rates
- Lower top tax rate to 15%
- Exclude foreign and earned income from taxation
- Impose one time tax on corporate earnings held overseas on which tax is deferred – possibly will be a 10% rate
- Repeal Alternative Minimum Tax – supplemental income tax imposed by the United States federal government required in addition to baseline income tax for certain individuals, corporations, estates and trusts that have exemptions or special circumstances allowing for lower payments of standard income tax
- Return the top tax rate on capital gains and dividends by 20% by repealing the 3.8% Obamacare Tax
- Repeal Death Tax so that small business’ and farmers don’t have to worry about complicated estate planning
- Not mentioned in the proposal was any ideas of a border adjustment or destination based cash flow tax which was previously an important proposal of the Republican Congressional Leaders
Nobody knows exactly what form the final bill will take or exactly what impact it will have on the economy. It is important to note, however, that there can be a major impact on both individual and business taxation. How would these proposed changes affect you?