Sunday , 21 April 2024

Expected Benefits of Trump’s Tax Plan (+2K Views)

The world of taxation at the personal and corporate level is about to gotax-(1) through a radical overhaul. For the most part, in my view, the forthcoming changes will be positive. With a Republican House and Senate, Mr. Trump has a good shot at having a good number of his tax reforms enacted.

The comments above and below are excerpts from an article by Bryan Perry ( which has been edited ([ ]) and abridged (…) by (Your Key to Making Money!)  to provide a faster & easier read.  Register to receive our bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner.)

Under Trump’s proposed new tax structure:

  • for individuals, there will be fewer tax brackets and lower top rates,
    • namely, 12%, 25% and 33%,
    • versus current rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
  • the tax rates on long-term capital gains would be kept at the current 0%, 15%, and 20%.

A quick view of how America’s wage earners break down in percentiles and how the new income tax brackets will affect each projects tax savings at every level, assuming that the head-of-household deduction is maintained.

Calculated Tax Increase or Decrease Under Trump Plan Table

  • As it stands, Trump’s proposed plan would eliminate head-of-household filing status, which has more favorable rate brackets than single filing status, so eliminating it will likely run into stiff resistance from both Republicans and Democrats.
  • About half of single parents with one child would see a bump in their tax rate. Thus, I expect a fire fight on this issue.

In the end, I expect Trump to bend on parts of his plan. [As to why he might have to please read this article which looks at Trump’s plan from a different perspective.]

The new plan would also:

  • abolish the alternative minimum tax (AMT) on individual taxpayers.
    • This is a major positive if AMT is eliminated,…
  • relinquish estate taxes altogether…[It would:]
    • subject accrued capital gains that are outstanding at death to capital gains tax, but there would be a $10 million exemption
    • cap itemized deductions at $200,000 for married joint-filing couples and $100,000 for unmarried folks,
    • increase the standard deduction for joint filers…to $30,000 (up from $12,700 for 2017 under current law),
    • increase the standard deduction for unmarried folks to $15,000 (up from $6,350), and
    • eliminate the personal and dependent exemption deductions.

Here’s what the progressive income tax brackets look like today:

Progressive Income Tax Brackets Table

If passed in its entirety, Trump’s plan saves a married couple making over $130,000 roughly $10,000 per year. As one can see from the following chart, major tax savings begin at a very low income bracket. Compared to the current income tax brackets, at least on a static basis, everyone’s ordinary tax rate falls.

The Trump Plan is a Large Tax Cut for the Middle Class Chart

Graphs are for illustrative and discussion purposes only…

[NOTE: please read this article for a look at Trump’s plan from a different perspective.]

Let’s “Get Down to Business” on Tax Reform

Another mammoth change involves corporate income tax rates. Under Trump’s plan:

  • corporate tax rates would be cut from the current 35% to 15%, but he would
    • eliminate tax deferral on overseas profits [and apply]
    • a one-time 10% tax rate for repatriation of corporate cash held overseas.

There’s a tremendous amount of support for this change, but it will surely run into opposition from Democrats.

In what I think would spark rapid hiring by small businesses, the new tax proposal would:

  • apply the same 15% tax rate to business income from sole proprietorship and business income passed through to individuals from “S” corporations, LLCs, and partnerships.

The chance of radically lowering this rate would unleash a wave of criticism by economists that federal tax revenues would suffer severely. In the short-term, that might be true, adding to the budget deficit; but with two-thirds of new hires attributed to small business, the longer-term structural gains might be worth it.

One area that gets approval from both sides of the aisle is:

  • the elimination of most corporate tax breaks, such as unlimited deductions for interest expense, and many of the write-offs and credits that have been loudly criticized as being corporate welfare.

Rest assured, the special interest lobbyists up and down K Street in downtown Washington, D.C., are already working overtime to protect these corporate goodies.

As to healthcare, expect some degree of overhaul and some other aspects of the existing program to remain in place.

  • I believe the 3.8% Medicare surtax on net investment income will be the first line item to be cut out of Obamacare.

I think the recent spike in premium rates announced just before the election had a lot of undecided voters pulling the lever for Donald Trump and Mike Pence. House Speaker Paul Ryan and his team have a modified bill drawn up that could become law, if they can outlast a Democratic filibuster.

The degree that these grand changes take effect will depend largely on how fast the Republicans can assemble legislation to go to a vote. In the first 100 days, presidents that have had wide opposition from within their own party, such as we’ve seen in this case, can repair lots of ill will and mend many fences with unified thinking.

  • Simplifying and lowering taxes on individuals, families, and businesses, while reducing the size of federal government by sending more power back to the states and slashing pet projects that fleece American taxpayers, is an absolute must to offset the lower level of future federal tax receipts.
  • The exploding costs of healthcare, welfare, and entitlements like Social Security, Medicare, and Medicaid will have to undergo severe modification as well as rolling back the burden of over-regulation if Trump has any shot at proposing a balanced budget over the next decade; but households in America have moved toward fiscal sanity since 2009, so why shouldn’t we expect the same from our elected officials?
  • More money in the hands of more people and businesses, and less in the hands of the long arm of federal government may sound radical to some, but it is one of the hallmark principles on the founding of our nation, when the Continental Congress told King George where to stick it.
  • Back in the Nixon days, a movement was promoted called “New Federalism,” which is the political philosophy of devolution, or the transfer of certain powers from the U.S. federal government back to the states.
    • President-elect Trump and his budget team might want to pull that plan off the shelf and put it to work as it would continue to keep the trend of less government and taxes more on course for America’s new-found future.

What do you think? Have your say in the Comment Section below.

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