Last week, President Donald Trump added some meat to the bare-bones tax overhaul his team unveiled earlier this year. The new nine-page document is still lacking in specifics, however, it does give Americans more information on how his proposed tax overhaul will affect them.
The response the new nine-page plan has been mixed. According to the New York Times, Conservatives cheered the plan as a “bold and long-awaited step to spur economic growth, while Democratic leaders condemned it as an irresponsible boon to the rich.”
On the individual side, the plan would collapse the tax brackets from seven to three, with tax rates of 12 percent, 25 percent and 35 percent. The current top rate is 39.6 percent and the lowest rate is 10 percent. The framework also gives Congress the option of creating a higher, fourth, rate above 35 percent to ensure that the wealthy are paying their fair share.
The plan calls for the doubling of the standard deduction to $12,000 for individuals and to $24,000 for married couples filing jointly. According to Trump, this is an attempt to simplify and cut taxes for the middle class. That would allow people to avoid a complicated process of itemizing their taxes to claim various credits and deductions, according to Trump.
An increase to the child tax credit from $1,000 has been something that Trump has stated would be a part of his plan, however, the final credit amount has not been specified in this new plan. What we do know is that he plans to create a new $500 tax credit for non-child dependents, such as the elderly.
However, most itemized deductions would also be eliminated, including those widely used for state and local tax expenses. While, deductions for mortgage interest expenses and charitable giving would be preserved. Also incentives for education and retirement savings plans remain a part of this plan. The deductions lost and the incentives preserved, critics say, largely favor the wealthy.
Business and corporate America seem to be the biggest winners with the tax plan.
The proposal calls for a reduction of the corporate tax rate to 20 percent from 35 percent, a shift that supporters say is needed to make American companies more competitive with their counterparts around the world.
A new tax rate of 25 percent would also be created for so-called pass-through businesses, such as partnerships and sole proprietorships, which are currently taxed at the rate of their owners. About 95 percent of businesses in the United States are structured as pass-throughs and they generate a majority of the government’s corporate tax revenue. However, 96 percent of real small business owners already pay taxes at 25 percent or less, and would get very little benefit from the rate cut. Only 4 percent of business owners, the very wealthy ones, will see a benefit, according to the US News & World Report. Furthermore, Congress would need to create safeguards that prevent wealthy individuals from incorporating as pass-through businesses, which would tax their income at a lower rate.
The plan call for the preservation of tax credits for research and development of low-income-housing. These business tax credit will benefit real estate businesses, similar to the one that Trump’s family still runs.
And finally, the business tax overhaul calls for a one-time repatriation tax to encourage companies to bring offshore profits back home. The details of this rate has yet-to-be-determined.
Trump’s tax plan is sure to shift over the upcoming months. Regardless of what the final version looks like, Waterman Realty and Tax Pro will be here to help you make sense of it. Contact us today.