Deep tax cuts and major changes to the individual tax system have been proposed by President Donald Trump and his team. President Trump’s economic advisors laid out the plan in an effort to strengthen his economic and legislative agenda as he nears the 100-day mark of his presidency.
The plan includes some notable changes from the rhetoric we’ve heard these last few months.
Of note, Trump is proposing to repeal a provision in the tax code that allows individuals to deduct the state and local taxes they pay from their reportable income. This provision could hurt residents of high-tax states such as New York, New Jersey, and California.
The move will also likely spur more home buying and charity donations as the standard deduction would only allow for mortgage and charitable donations.
The president is proposing a 35% top tax rate for individuals, down from the current 39.6% rate. Lower brackets would be set at 10% and 25%.
The corporate tax rate would drop to 15% from 35%, and U.S. companies would owe little or no U.S. tax on their future foreign profits. The tax rate on business income reported on individual returns also would drop to 15% instead of being taxed at individual tax rates.
The estate tax, alternative minimum tax (AMT), and death tax would all be repealed.
It was not made public if Mr. Trump’s plan addresses the following issues.
- Can companies immediately write off capital expenses?
- Personal Exemptions? What happens?
- The one-time tax rate on U.S. companies’ foreign earnings;
- What to do with child care tax credits?
These unknowns make it difficult to calculate the fiscal impact of the plan.
Treasury Secretary Steven Mnuchin and Gary Cohn, Mr. Trump’s economic advisor said those details are being negotiated with Congress.
“We have a unique opportunity to do something major here,” said Mr. Cohn. “It’s our intention to create a huge tax cut and equally as important, a huge simplification of the tax system in America.”
Getting tax reform is certainly difficult, but not impossible. It will begin in Congress where budgetary hurdles and politics will make it difficult for an easy solution. Starting with the fact he likely won’t get one Democratic vote, the plan must comply with legislative procedures that allow it to be approved by a majority vote, instead of the 60 votes that are typically needed. With those procedures, any tax plan can’t increase budget deficits beyond a 10-year period.
Republicans largely praised the plan, although they noted differences remain.
“It really makes clear the president’s commitment on tax reform and delivering it in a very bold way this year,” said Rep. Kevin Brady (R-Texas), chairman of the House Ways and Means Committee. “We’ve still got some work to do. There’s no question about it.”
Democrats are concerned the plan tilts the table toward high-income households. Sen. Chuck Schumer of New York, the chamber’s Democratic leader, said the proposal to cut tax rates for pass-through businesses would just benefit high-income people like the president himself.
“The very wealthy are doing pretty well in America,” Schumer said on the Senate floor on Wednesday. “God bless them. Let them do well. They don’t need another huge tax break.”
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