The political conventions are over and we finally have both major party’s nominees for president – Donald Trump for the Republicans and Hillary Clinton for the Democrats. So where do the candidates stand when it comes to tax reform?
This post will focus on Donald Trump’s proposed tax plan and is gleaned from his campaign website: www.donaldjtrump.com. I will also provide a look at Hillary Clinton’s ideas on tax reform in a future post.
Mr. Trump’s plan has four goals: (1) middle class tax reduction, (2) simplification, (3) corporate tax reform to spur economic growth, and (4) no increase in the national debt. Here are some of the proposed changes found in Mr. Trump’s plan that will affect individuals:
- Singles earning less than $ 25,000 and marrieds earning less than $ 50,000 annually will owe no income tax. Nearly 75 million households would be taken off the tax rolls.
- Tax brackets will be reduced from seven rates to four – 0%, 10%, 20% and 25% with the top rate being slashed from the current 39.6% down to 25%. The current tax brackets are as follows: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
- The Alternative Minimum Tax, which has been hitting more and more taxpayers in recent years, would be eliminated.
- The plan would cap the tax rate on all business income at 15%. This would produce a significant tax cut for small businesses that operate as sole proprietors, partnerships or S Corporations because they would pay 15% on business income rather than be taxed at their personal rates (which are currently as high as 39.6%).
- Higher income taxpayers would see most of their deductions and exemptions be cut in exchange for the lower rates. However, there is good news. The charitable contribution and mortgage interest deductions would be preserved for all taxpayers.
- The estate tax (a.k.a “death tax”) will be eliminated for all taxpayers.
Major tax reform in 2017 appears likely if Mr. Trump wins the White House and the Republicans maintain control of the House. As always, I will keep abreast of any tax changes that will be forthcoming and will continue to advise you and your family to make sure you pay the lowest possible tax. Stay tuned for my next post which will outline the details from Hillary Clinton’s tax reform agenda.
David K. Raye, CPA
*First published on August 1, 2016