The Main Takeaways from Trump’s Tax Plan as Congressional Battle Looms
Following months of speculation, Republican leaders officially unveiled a plan Wednesday to rewrite the U.S. tax code. The ambitious framework matches or comes close to matching President Donald Trump’s campaign promise to reduce taxes on businesses and individuals.
The proposed plan, which aims to lower taxes on corporate income and simplify individual income tax brackets, is expected to make its way through Congress in the coming months. According to analysts, that’s where the real challenge starts.
For starters, Congress hasn’t approved a tax rewrite this ambitious since 1986. Secondly, the Trump camp has struggled mightily to earn lawmakers’ support around healthcare reform and other controversial reforms. This is likely to continue as the tax debate heats up.
Main Takeaways from the Trump Tax Plan
The plan shaves $2.2 trillion from federal coffers.
The GOP framework aims to reduce taxes by $5.8 trillion over a decade, according to the nonpartisan Committee for a Responsible Federal Budget. The program will raise $3.6 trillion via new revenue streams, for a net cut of $2.2 trillion.
President Trump is confident that the decline in revenue will be offset by faster economic growth. The new tax provisions, combined with deregulation and fiscal stimulus, is expected to produce annual growth of 3% or more for the foreseeable future. That is, once the plans are up and running.
It’s good for the wealthy.
Not only does the Republican plan shave off a few percentage points off the top income bracket, it repeals the estate tax. It also includes the elimination of the 25% alternative minimum tax, which is the rate applied to businesses that pay taxes on their owners’ individual returns.
That being said, the GOP plan leaves an opening for a fourth income tax bracket above 35%, which would apply to very high earners. The current proposal reduces individual tax rates to just three brackets set at 12%, 25% and 35%.
It may offer relief to lower- and middle-income households.
The framework also benefits lower- and middle-income earners by doubling the basic standard deduction to $12,000 for individuals and $24,000 for married couples.
However, current law provides married couples with two children tax exempt status on the first $28,900. That’s because of the personal exemption and standard deduction standards currently in place. In this case, the $24,000 deduction under the Trump plan would be smaller than the relief they get under the current framework.
It conceals as much as it reveals.
Though still in its formative stage, the GOP plan offers scant details about important business taxation issues. Although Trump is sticking to a 20% corporate tax rate, versus 35% today, nothing is mentioned on non-corporate business. This impacts real estate, agriculture and private-equity firms.
Although the plan talks about a reduce rate on international business, it doesn’t really offer much incentive for multinationals to repatriate. According to analysts, the draft framework suggests corporations would be subject to minimum tax on foreign income (they are opposed to this).