written by Jennifer Cochran
President-Elect Trump has promised substantial tax cuts for businesses and individuals as one way to stimulate economic growth. With Republican control of Congress, it is widely expected to happen early on in his term as President. The prognosticators believe House Speaker Ryan’s tax plan, which was proposed months ago, is likely to be the framework for any legislation to come before Congress. It, therefore, is instructive to look at the basic provisions of Speaker Ryan’s tax plan.
The proposed tax plan would cut rates for businesses and individuals, simplify the tax filing process and restructure the international tax code. The proposed plan emphasis is on cutting rates and eliminating deductions while embracing a business consumption tax (consumption tax is a tax on the spending of goods and services).
Proposed changes for Individual Income Tax:
- Individual tax rates changed from 10-39.6 to 12-33%
- Capital gains rate changed from 0-20 to 6-16.5%
- Increases the standard deduction from$6,300 to $12,000 singles, from $12,600 to $24,000 for married couples filing jointly, and from $9,300 to $18,000 for head of household
- Eliminates the personal exemption and creates a $500 non-refundable credit for dependents who are not children
- Increases the Child Tax Credit to $1,500 per child, and raises the phase-out threshold for the Child Tax Credit for married households from $110,000 to $150,000
- Eliminates all itemized deductions besides the mortgage interest deduction and the charitable contribution deduction.
- Eliminates the alternative minimum tax.
Proposed changes for Business Income Tax:
- Reduces the corporate income tax rate from 35 to 20%
- Eliminates the corporate alternative minimum tax
- Taxes income derived from pass-through businesses (partnerships and S-Corps) at a maximum rate of 25%
- Eliminates the domestic production activities deduction and all other business credits, except for the research and development credit
- Modifies all business income taxes to be border-adjustable, disallowing the deduction for purchases from nonresidents and exempting export profits and foreign-derived profits from taxation.
The proposed changes are expected to increase the economy by 9.1%, result in 7.7% higher wages and 1.7 million more full-time equivalent jobs. This is according to the Tax Foundation’s Taxes and Growth Model. This proposal is still in the planning stages and will definitely have changes to it before the plan is finalized. But one thing is certain we should expect wide spread changes to our tax law in the near future.