Trump Administration outlines tax plan
On Wednesday, the Trump administration has released its tax reform outline: the “2017 Tax Reform for Economic Growth and American Jobs.” Although it doesn’t include specific proposals like the border adjustment tax, it does call for a “territorial tax system to level the playing field for American businesses,” as well as significant tax cuts and simplification. Here’s what you need to now.
Business tax reforms
Treasury Secretary Steven Mnuchin stated that the goal for business tax reform is to make U.S. businesses the most competitive in the world. He shared a one-page summary with the press outlining the following concepts aimed at making that happen:
- 15 percent business tax rate applied to businesses of all sizes: From the initial discussions, it seems that it would also apply to pass-through entities. In answer to a question, the secretary stated “we will make sure that there are rules in place so that wealthy people can’t create pass-throughs…as a mechanism to avoid paying the tax rate that they should on the personal side.”
- A territorial tax system to level the playing field for American companies: The secretary would say only that this system “means that U.S. companies will pay [tax] on income related to the U.S. [They] would not be subject to worldwide income, which has made them uncompetitive.”
- One-time tax on trillions of dollars held overseas: The goal is to create a special rate for repatriated overseas earnings in order to bring money into the U.S. for investment that would purchase capital assets and create jobs. No details were provided on what that rate would be or how long it would be available.
- Eliminate tax breaks for special interests: No specific tax breaks were mentioned at this time.
- Reduce seven brackets to three (10, 25, and 35 percent): The income brackets to which those rates would apply are still being negotiated in discussions with senators and representatives.
- Double the standard deduction: A higher standard deduction would eliminate complexity for many individual taxpayers, as it could make the standard deduction more valuable than the sum of itemized deductions.
- Provide tax relief for families with child and dependent care expenses: Specifics on what this relief would look like were not yet available.
- Repeal the Obamacare 3.8 percent tax on capital gains and dividends: Under the Trump plan, the top capital gains and dividend tax rate would return to 20 percent.
- Eliminate targeted tax breaks that mainly benefit the wealthiest tax payers: No specifics were given on what breaks would be eliminated.
- Protect the home ownership and charitable gift deductions, as well as retirement savings: According to National Economic Council Director Gary Cohn, these three benefits will remain, but “other tax benefits will be eliminated.” For instance, the deduction for state and local taxes paid would no longer be available.
- Repeal the Alternative Minimum Tax: The director also stated that “The AMT creates significant complications and burdens which require taxpayers to do their taxes twice to see which is higher. That makes no sense, and we should have one simple tax code.”
- Repeal the Estate Tax: Director Cohn explained that, “The threat of being hit by the death tax leaves small business owners and farmers in this country to waste countless hours and resources on complicated estate planning to make sure their children aren’t hit with a huge tax when they die.”
All of these proposals are, at this point, nothing more than proposals, but they provide a starting point in the discussion with Republicans on Capitol Hill in order to determine what a final tax reform package might include.