10 11 2016

The Tax Plans Of President-Elect Trump

Taxpayers in the United States could be in line for substantial income tax cuts following Donald Trump's surprisingly comfortable victory in the presidential elections on November 8.

Trump secured the presidency after victories in key swing states, including Florida, Pennsylvania, and Ohio, propelled him across the 270 electoral college vote winning post.

While Trump's tax plans were revised during the campaign period – and there is therefore some uncertainty about the details – the underlying intent of his proposals is to lower and simplify taxes for most taxpayers.

On the business tax side, Trump proposed to cut the federal headline rate of corporate tax to 15 percent from 35 percent. He has previously expressed a wish to extend that rate to freelancers, sole proprietors, unincorporated small businesses, and to pass-through entities, which are taxed within the individual income tax code. However, in a subsequent statement, Trump suggested that the rate would only be available for "all businesses that want to retain the profits within the business."

Trump is also proposing a one-time deemed repatriation tax at a reduced rate of 10 percent on the substantial untaxed earnings held abroad by US multinationals. However, under the latest version of his tax plan, US-based manufacturers would have to choose whether to elect for the full expensing of plant and equipment or retain their current right to deduct interest costs.

For personal income tax payers, the present seven tax brackets would be reduced to three under Trump's plan, with tax rates set at 12 percent, 25 percent, and 33 percent. This would result in a significant cut in the current top rate of income tax of 39.6 percent. No income tax would be payable on the first USD15,000 of income for single filers, and the first USD30,000 for joint filers.

In addition, "carried interest" would be charged at an individual's normal income tax rate, capital gains and dividends would have a maximum 20 percent rate, and itemized tax deductions would be capped for those earning USD100,000, and USD200,000 for married filers. However, the net investment income and estate taxes would be eliminated.

It has been estimated that Trump's tax plan would reduce tax revenue by USD4 trillion over ten years, or USD2.6 trillion on a "dynamic scoring" basis, which accounts for projected economic growth effects.

Despite the Republican Party retaining is majority in the Senate and the House of Representatives, it is unclear how much support there is for Trump's tax plan in Congress.