In rounding out his first 100 days in office, President Trump released an overview of his proposed tax plan. The one page bullet point plan consists of general taxpayer relief for individuals in the form of a simplified tax system as well as relief targeted specifically at American businesses in the form of a lower maximum income tax rate.
President Trump’s plan includes reducing our current seven bracket system down to three, consisting of a 10%, 25%, and 35% bracket, and doubling the standard deduction. He also intends to provide unspecified tax relief to families with child and dependent care expenses. His plan would repeal the Alternative Minimum Tax, the estate tax, and the 3.8% net investment income tax that was introduced as part of the Patient Protection and Affordable Care Act (commonly referred to as “Obamacare”).
President Trump also intends to eliminate certain unspecified tax breaks that “mainly benefit the wealthiest taxpayers,” but he does intend to keep the deductions for payment of home mortgage interest and charitable contributions.
President Trump has proposed a 15% “business tax” rate. While this would be a welcome modification for all businesses, corporations would have the easiest time with implementation. Implementation will be more difficult for flow–through entities, such as partnerships, because they do not pay income tax on their net income. Instead, their net income “passes through” to, and is reported by, their owners who are then taxed on this income at their individual rate. President Trump has not yet released a plan for implementation.
Currently, the U.S. has a policy of taxing the worldwide income of its citizens, residents, and businesses that are headquartered in the U.S. President Trump has proposed, at least for businesses, that the U.S. switch to a territorial tax system whereby the U.S. will only tax those earnings actually generated within the U.S. Additionally, he has proposed that the U.S. allow U.S. corporations to repatriate their offshore funds. He has not yet released specifics on the rate he would impose during the repatriation process.
Finally, President Trump has proposed the elimination of certain unspecified “tax breaks for special interests.”
In May, President Trump intends to hold listening sessions in order to refine his plan. He then intends to work with both the House and the Senate to formulate a final plan.