On April 26, the Trump administration released an outline of its tax proposals for Congress. The proposal includes a steep tax cut for corporations and businesses from 35% (39.6% for individual owners) to 15%. The maximum rate for individuals (other than for business income) would be reduced from 39.6% to 35%, and the 3.8% net investment income tax and the alternative minimum tax would be repealed. The thresholds for the tax rates haven’t been specified.
No “border tax” for imports is proposed at this time. Corporations would move from a tax on worldwide taxable income to a “territorial” tax system, which would subject them to U.S. tax only for U.S. income.
On the deductions side, the standard deduction would be doubled to $24,000 for a married couple, and all itemized deductions would be repealed except the deduction for home mortgage interest and charitable contributions. (So with almost all deductions repealed, who needs an alternative minimum tax?)
A side effect of the increased standard deductions and repealing the deduction for real estate taxes is to eliminate the tax benefits of home ownership for almost all Americans except for those in very high cost areas like the San Francisco Bay Area.
With the high standard deduction, most taxpayers won’t receive a tax benefit for making charitable contributions.
For many taxpayers who live in states like California, the state income tax deduction is their biggest tax deduction. It would be eliminated under this plan, and they might discover they will pay higher income taxes under these proposed changes.
Although the Trump administration proposes to provide more tax benefits for child care, single parents will probably find that is more than offset by a tax increase from the elimination of head of household status.
Another feature of the proposal is to repeal the federal estate tax, which currently only applies to the very wealthy, since a married couple already has almost an $11 million exclusion. The proposal didn’t specifiy whether the federal gift tax would be repealed or not.
Many details still need to be provided, and the devil is in the details. The bare bones of this proposal would result in a huge tax windfall for the wealthy and tax deficits for the nation.
These proposals are only the beginning of a huge negotiation battle in Congress. Let your representatives in Congress know the changes that you favor and the changes you oppose. Here is a web site with contact information. https://www.usa.gov/elected-officials