The Trump Administration Tax Reform Plan
Reducing personal and corporate tax rates is a centerpiece of the new Trump tax reform proposal which came out April 26, 2017. The changes are meant to stimulate domestic corporate profits and hiring while giving the middle class a tax break.
The other goal of the proposal is the simplification of this process that has grown too complex for the average person. With any changes to the current tax code and the way personal taxes are collected. There is substantial interest in how tax revenues might be affected. Also what taxpayers can expect for popular deductions.
According to Treasury Secretary Steven Mnuchin, the structure is “A tax plan that will count partly on revenue from economic growth spurred by tax cuts and partly on revenue from limiting deductions and other tax breaks.”
The White House blog states that the focus of tax reform has centered on: “job creation, economic growth, and helping low and middle-income families who have been left behind by this economy.”
The U.S. currently has the highest corporate tax rate among developed countries. This is an issue the president addressed regularly on his campaign trail. Furthermore, nearly 6,000 changes have occurred to U.S. Tax Code since 2001.
With this in mind, the tax reform proposal seeks to cut taxes for business to increase competitiveness and cut taxes for taxpayers to increase household income.
The new tax proposal is about simplification. The administration notes that “In 1935, we had a one-page tax form consisting of 34 lines and two pages of instructions.” However, today the basic 1040 form has 211 pages of instructions and the IRS offers 199 tax forms just for individual taxpayers. The White House blog states that taxpayers are spending nearly 7 billion hours complying with the tax code every year.
A section of the reform package will reduce the seven marginal tax brackets into just three; 10, 25, and 35 percent. The plan is proposing a double in the standard deduction. For married couples, there will be a zero percent tax rate on the first $24,000 of earnings. The plan also eliminates the Alternative Minimum Tax. The doubling of the standard deduction means that fewer people will need to itemize, further reducing the complexity of filing.
The top tax rate on capital gains and dividends will be 20 percent. (which would repeal the 3.8 percent Obamacare tax) The death tax would be repealed also, helping with reducing all of the strategies required to save heirs from a big tax bill.
The cut in capital gains is intended to ignite more capital investment and stimulate growth.
The plan, Mnuchin says, will rely on new revenues generated by a robust economy. He anticipates that tax revenues will remain buoyed by the new reforms. The plan calls for comprehensive tax reform to grow the economy, simplify the tax system and not reduce government revenues.