The tax changes described on President Donald Trump’s website are a crucial part of his overall plan to boost growth in the U.S. economy to an average rate of 3.5% per year and to create 25 million new jobs. The website states that the goals of Trump’s Tax Plan include the following:
Tax Proposals Affecting Individuals
Trump’s proposals would reduce the seven current tax brackets for individuals to three brackets. The tax brackets for married-joint filers are:
Taxable income less than $75,000: 12%
Taxable income more than $75,000 but less than $225,000: 25%
Taxable income more than $225,000: 33%
Tax brackets for single filers would be one-half of these amounts.
The Tax Plan states that “Low-income Americans will have an effective income tax rate of 0%.”
Trump’s proposals would retain the existing capital gains tax rate structure, with a maximum tax rate of 20%.
The Trump Tax Plan includes significant new childcare and elder care proposals, including an above-the-line deduction for children under age 13 and for elder care of a dependent. These deductions would not be available to taxpayers with total income over $500,000 for married-joint filers and $250,000 for single filers. The Plan would also allow the establishment of Dependent Care Savings Accounts.
Other proposals described in Trump’s Tax Plan affecting individuals include the following:
Tax Proposals Affecting Businesses
The Trump Tax Plan would lower the corporate income tax rate from 35% to 15% and eliminate the corporate Alternative Minimum Tax. The Tax Plan states, “This rate is available to all businesses, both small and large, that want to retain the profits within the business.”
On June 24, 2016, the House Republicans released the publication, “A Better Way — Our Vision for a Confident America,” which was intended to serve as the basis of tax reform legislation that will be “ready for legislative action in 2017.” The tax proposals described in this publication would limit the tax rate for business income earned through a sole proprietorship or a pass-through entity (such as a partnership or an S corporation) to 25%. In other words, this pass-through business income would be taxable at a maximum tax rate of 25%, even if an individual receiving the pass-through income is otherwise taxable in a higher bracket.
Previous Trump proposals contain a similar special tax rate for income from businesses that operate as pass-through entities. However, the current Trump Tax Plan on his website does not include a special rate for this pass-through income.
Other proposals described in Trump’s Tax Plan affecting businesses include the following:
Conclusion
The tax proposals described in President Trump’s Tax Plan include significantly lower income tax rates for individuals and businesses and other major changes. These proposals, and the proposals described in the House Republican’s “Blueprint,” are expected to receive significant scrutiny in early 2017. Stay tuned.
