Calling it the ?biggest tax cut in history,? President Donald Trump last week laid out his administration?s plan to completely overhaul the nation?s tax system. Tax reform was one of the biggest calling cards of the new president during his campaign, which ended in victory last November. The president is hoping to convince both the public, as well as legislators in the nation?s Capitol, that now is the time to ?unrig? the tax code and that his plan will accomplish that.
Will Trump?s Taxes Go Up?
Trump promises to ?get rid of the loopholes and complexity that primarily benefit the wealthiest Americans and special interests.? And he even went so far as to hint that his own taxes would go up under his plan.That remains to be seen, as does whether or not he?ll be able to convince lawmakers to pass his plan. But that?s a topic for another day. Let?s take a closer look at some of the specifics of Trump?s big plans.
A Closer Look at the Details
One of the biggest reforms Trump is hoping to make is lowering the corporate tax rate from its current 39.1 percent mark all the way down to 20 percent. The president also wants to reduce the number of personal income tax brackets and lower the highest rate from 39.5 percent to 35 percent. He also wants to double the standard deduction, increase the child tax credit,and raise the threshold to qualify for that credit. Lastly he wants to repeal the Alternative Minimum Tax (AMT) and kill off the estate tax. So let?s touch on those last two a little more in-depth.
Repeal Alternative Minimum Tax
The AMT has been around since the late 60?s and most people have never had to worry about it. It was originally created to ensure that the wealthiest taxpayers couldn?t use loopholes and their deductions to get away with underpaying on their taxes. The AMT runs on its own set of rules, which are different from the regular tax code. At the moment, it sounds like Trump is only calling for a repeal of the individual AMT. These days, due to inflation, the AMT is affecting a lot more taxpayers than it used to. In many cases, it is not affecting those who it was actually created for, which is why many have called for its repeal. The biggest question is how would the government replace the money it brings in? Trump?s answer: by eliminating several deductions in the tax code.
Eliminate the Estate Tax
Meanwhile, the administration also wants to eliminate the estate tax that currently applies to estates valued over $5.5 million. Even though this tax affects only about one out of 500 taxpayers (or 0.2 percent) that are wealthy enough to pay it, the president and many others have been calling for its repeal for a number of years. One interesting note, the estates? of 13 of the 24 members of Trump?s cabinet would currently be on the hook to pay this tax. The other side of this is how it could affect the other 99.8 percent who don?t have to worry about the estate tax. Some worry that the current ?tax-free step-up? that the heirs of those 99.8 percent enjoy when their benefactor dies could be eliminated as well with the repeal of the estate tax. That could also eliminate some substantial tax breaks for the 99.8 percent to help cover the lost revenue from the estate tax.
Still, Work to Be Done
Of course, the rhetoric has already begun from all sides, including politicians, the media, tax professionals and certainly so-called financial experts. It remains to be seen if the president?s proposals will be able to become law, as so far,pushing legislation through the House and Senate has been anything but easy. For the new president.