In just nine pages, President Trump has contained the crux of his new tax proposal. These nine pages include information on tax reform that indicate the possibility of several things: a reduction of the number of federal tax brackets from seven to three (Lyons Cole); a reduction in the number of deductions or possibly the elimination of deductions altogether; the elimination of several tax deductions and alternative means of calculation; and a simplified tax return process. Details of how these initiatives will be accomplished and how the decreased tax load will be accounted for are not detailed in Trump’s short document, however.
Trump was assisted in the development of his tax reform recommendations by a group of Republican directors and politicians including National Economic Council Director Gary Cohn; Steven Mnuchin, the Treasury secretary; Sen. Orrin Hatch, the Senate Finance Committee chairman; Senate majority leader Mitch McConnell; Paul Ryan, the House speaker; and House Ways and Means Committee chairman Kevin Brady (Bryan). This group, known as the Big Six, believe that the new tax bill, if passed, would move forward “with a unified framework that paves the way for bold, transformational tax reform that will bring more jobs, fairer taxes, and bigger paychecks” (Bryan). However, there are some important elements that are missing from this new tax plan.
One of the key elements missing from this tax plan is the alternative minimum tax. It would simply disappear under Trumps proposed tax plan. This supplemental tax, utilized by individuals and businesses, allows for a lowered tax rate depending upon a defined set of special circumstances. State and local tax deductions are also absent in Trump’s new plan. The estate tax is, in essence, gone as well, and so are several of the tax brackets. Currently, there is a seven-bracket structure, but the new plan calls for just three tax brackets proposed at 12%, 25%, and 35%. Interestingly, though, the new plan does not define the income thresholds for these three tax brackets, nor does the plan indicate how the tax cuts will be paid for. Additionally, simplifying the tax bracket structure and the taxation process does not necessarily equal a reduction in taxes for all individuals. “Some taxpayers would definitely benefit from Trump’s tax reform – especially those at the higher end of the income scale. There are others, however, who would see their tax rates go up. Especially those on lower incomes” (Elkins).
President Trump has not yet indicated what this new tax plan, if passed, will cost or how it will be accounted for in the national budget. Perhaps the one item in Trump’s new tax plan that raises the most speculation and causes the most debates is the reduction of the corporate rate of taxation. Trump is proposing lowering the corporate tax rate from 35% to 20%. He claims to be proposing this as a means to allow companies based in the United States to become more competitive with international counterparts (Hirschfeld Davis and Rappaport). Along with the reduced rate of taxation for corporations, Trump is also proposing a 25% tax rate for pass-through businesses. These businesses comprise nearly 95% of all sole proprietors and business partnerships in America (Hirschfeld Davis and Rappaport). This recommendation by Trump is not without its detractors, though. Former Chief of Staff for the Congressional Joint Commission of Taxation Edward Kleinbard claims that a proposal such as this would be “hugely expensive in terms of revenue loss” and “hugely advantageous to wealthy taxpayers” (Kelly and Rappaport).
The new tax plan does increase the standard deduction – in fact, it doubles it for both those who are dingle and those who are married and file jointly, and it also increases the tax credit per child as well. It also creates a new tax credit for those caring for dependents who are not children, and success a $500 credit for caring for an elderly parent, for example (Hirschfeld Davis and Rappaport).
Of course, any tax reform bill presented must meet some predesignated formats. It must follow the Byrd Rule, which means that a tax bill cannot add to the deficit in the budget after the completion of a 10-year budget window, and it must also not go over the previously agreed-to tax cuts allowed for in the current budget’s 10-year window. This equates to an allowance of $1.5 trillion in cuts during the next ten years according to the Byrd Rule and the 10-year stipulation. Accounting for potential growth in the budget, passing a temporary tax bill that affects taxation for less than 10 years, or figuring out a plan to end the Byrd Rule and the 10-year stipulation are all solutions to a new ta structure that will cost more that the allowed $1.5 trillion over the next ten years, and Trump’s plan will likely top this figure in the corporate sector alone, as the 15% reduction in the corporate tax structure would fill in nearly most of this large figure. Trump and his team my opt to raise the floor of this tax rate to around 28%, making for an easier transition and a less challenging 10-year budgetary situation, even though Trump has said for nearly a year now that the corporate rate should be at 15%. He also campaigned on this promise, so it is possible that he will hold steadfast to this bottom corporate tax rate. In any case, Trump’s proposed tax reform bill has not been solidified or presented to Congress, so only time will tell the outcome of the information contained in the nine pages.
- Bryan, Bob. “It’s Here: All the Details of Trump’s Massive Tax Plan.” Business Insider: Your Money, N.p. 27 Sept. 2017. Web. 22 Oct. 2017.
- Elkins, Kathleen. “Chart Shows Exactly How Trump’s Tax Reform Could Affect You.” CNBC, N.p. 28 Sept. 2017. Web. 22 Oct. 2017.
- Hirschfeld Davis, Julie and Alan Rappaport. “Trump Proposes the Most Sweeping Tax Overhaul in Decades.” The New York Times, N.p. 27 Sept. 2017. Web. 22 Oct. 2017.
- Kelly, Kate and Alan Rappaport. “Trump’s Proposed Tax Cut Could Open a Path to Widespread Avoidance.” The New York Times, N.p. 09 May 2017. Web. 22 Oct. 2017.
- Lyons Cole, Lauren. “How Your Tax Bracket May Change Under Trump’s New Tax Plan, In One Chart.” Business Insider: Your Money, N.p. 11 Oct. 2017. Web. 22 Oct. 2017.