The world of taxation both at the personal and corporate level are about to go through a radical overhaul.
For the most part, the forthcoming changes will be positive in my view for the greater good. Trump promised to re-work the tax system and, with a Republican House and Senate, he has a good shot at having a good number of tax reform changes enacted.
Some of his tax proposals are fairly radical. But that doesn’t mean they won’t be enacted, because the Republicans will control both the House and the Senate.
I find it entirely hypocritical that House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell seem to be totally catering to Trump now, after deserting him during the campaign along with Sens. John McCain and Lindsey Graham, as well as Reps. Reid Ribble, Scott Rigell and Mark Sanford, among many others.
Under Trump’s proposed new tax structure for individuals, there will fewer tax brackets and lower top rates: 12%, 25% and 33%, versus the current rates of 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The tax rates on long-term capital gains would be kept at the current 0%, 15% and 20%. The new proposed plan would eliminate head of household filing status. Head of household filing status is for unmarried individuals who have dependents, such as single parents. It has more favorable rate brackets than single filing status, so head of household filing status is more advantageous and thus will likely run into stiff resistance from both Republicans and Democrats.
Fact checking shows about half of single parents with one child would see a bump in their tax rate. Thus, expect a firefight on this issue.
The new plan would abolish the alternative minimum tax (AMT) on individual taxpayers. This is a major positive if AMT is eliminated. In addition to radical changes, Trump wants to relinquish estate taxes altogether. Trump’s plan also would subject accrued capital gains that are outstanding at death to capital gains tax, but there would be a $10 million exemption. In addition, the plan would cap itemized deductions at $200,000 for married joint-filing couples and $100,000 for unmarried folks. The standard deduction for joint filers would be increased to $30,000 (up from $12,700 for 2017 under current law). For unmarried folks, the standard deduction would be increased to $15,000 (up from $6,350). The personal and dependent exemption deductions would be eliminated.
Another mammoth change involves corporate income taxes. Under Trump’s plan, corporate tax rate would be cut from the current 35% to 15%, but eliminate tax deferral on overseas profits. A one-time 10% tax rate for repatriation of corporate cash that is held overseas would be on the table. There’s a tremendous amount of support for this change, but will surely run into opposition from Democrats who will see any cuts in corporate taxes as unacceptable.
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