IT’S HERE: Details of Trump’s massive tax plan
President Donald Trump on Wednesday rolled out a tax plan, which includes a 20% corporate tax rate and the elimination of the state and local tax deduction.
From www.businessinsider.com – Link to Original Article.
Personal tax changes:
- A bottom individual tax rate of 12%. The plan specifies three tax brackets (for now), with the lowest rate being 12%. That would represent a slight bump in the bottom bracket, which is now 10%. People currently in the 15% marginal tax bracket would most likely be included here.
- A middle tax bracket of 25%. The incomes in this bracket aren’t specified.
- The top individual tax rate of 35%. The current top rate is 39.6%.
- The possibility of a fourth, higher bracket. Due to Trump’s insistence that the taxes for the wealthiest Americans not decrease, the plan proposes the possibility of a fourth tax bracket at a rate higher than 35% if the tax-writing committees wish. “An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers,” the plan reads.
- A larger standard deduction. To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would be doubled to $12,000 for individuals — up from $6,350 — and $24,000 for married couples — up from $12,700. These are slightly less than the doubled deduction expected. (And as noted Business Insider’s Josh Barro, the idea that this will save people money may be misleading.)
- Eliminates most itemized deductions. While not specifically named, the only deduction preserved in the plan explicitly are for charitable gifts and home mortgage interest.
- Increases the size of the child tax credit. A pet project of Ivanka Trump, the plan proposes to make the first $1,000 of the child tax credit refundable and would increase the income level at which the credit would phase out.
- Vague promises on retirement savings and other deductions. There are sections of the plan referring to retirement savings and other “provisions,” but details were sparse.
- Elimination of the state and local tax deduction. The SALT deduction allows people to deduct what they pay in state and local taxes from their federal tax bill. This deduction is mostly taken by wealthier Americans in Democratic states. Around one-third of the benefits from people using the SALT deduction comes from New York, New Jersey, and California.
- Elimination of the estate tax. Called the “death tax” in the plan, this tax only applied to inherited assets totaling $5.49 million or more in 2017. Very few households pay the estate tax, but it has been a long-time target for Republicans.
MAGA Trump Taxes
Business tax changes:
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- A 20% corporate tax rate. This is the first time Trump has publicly backed down from one of his earliest campaign promises: a 15% corporate tax rate. The budget math required for a 15% rate was too difficult, so the somewhat higher rate will be the opening bid. That would still bring the current 35% statutory federal rate down significantly.
- A 25% rate for pass-through businesses. This would apply to people who own business. Instead of getting taxed at an individual rate for business profits, owners of firms would pay at the pass-through rate. The plan also says it will consider rules to prevent “personal income” from being taxed at this rate. Mnuchin previously suggested there may be limitations on what types of businesses get this rate — it could apply only to goods producers and not service-oriented companies to prevent people from creating limited-liability corporations to store their assets and receive a lower rate.
- Elimination of some business deductions, industry-specific incentives, and more. There are few details, but the plan includes language regarding the “streamlining” of business tax breaks.
- A one-time repatriation tax. All overseas assets from US-owned companies would be considered repatriated and taxed at a one-time lower rate — this is designed to bring corporate profits back from overseas. Illiquid assets like real estate would be taxed at a lower rate than cash or cash equivalents, and the payments would be spread out over time. While there is no precise number in the plan, officials have indicated the rate could end up somewhere around 10%.