Trump's Tax Plan: Across the Board Tax Cuts
Last week, we looked at an overview of the basic points of President-elect Donald Trump’s tax policy. Moving on, we now need to look at the first of of his four basic policy points: across the board tax cuts.
Trump’s Fiscal Policy Fact Sheet on his campaign website states,
Every income group receives a tax cut under the Trump plan, with a million more being removed from the income tax rolls and low-income Americans paying no income tax at all. The greatest percentage reduction in tax bill goes to working and middle class taxpayers.
The Tax Policy Center has broken Trump’s points down and analyzed them further. Breaking down the numbers, this is what they determined tax cuts would look like for the average taxpayer under a Trump administration:
- Collapse the current seven tax brackets, which range from 10 to 39.6 percent, into three brackets of 10, 20, and 25 percent
- Increase the standard deduction to $25,000 for single filers and $50,000 for joint filers in 2015, indexed for inflation thereafter.
- Leave personal exemptions unchanged at $4,000 per person in 2015, indexed.
- Tax dividends and capital gains at a maximum rate of 20 percent.
- Limit the tax value of itemized deductions (other than charitable contributions and mortgage interest) and exclusions for employer-provided health insurance and tax-exempt interest.
- Increase the phaseout rates for the personal exemption phaseout and the limit on itemized deductions.
- Repeal the alternative minimum tax.
- Tax carried interest as ordinary business income.
- Repeal the exclusion for investment income on life insurance contracts entered into after 2016.
- Repeal federal estate and gift taxes.
(Bullet info points created by the Tax Policy Center in their analyzation of Trump’s tax plan)
That is a substantial amount of information, but certain key points can be easily summarized.
To begin, our tax bracket system would be simplified. Currently, there are seven different tax brackets. Each bracket is based on income. Here is an example from Fidelity on determining which tax bracket you fall into:
Trump is advocating for a simpler system, one that would narrow the bracket system down to three categories. Instead of having seven odd percentage categories, the percentages would be simplified to 10%, 20%, and 25%. This would make our bracket system more flat, fair, and even.
Another major point of Trump’s taxpayer cuts is the rise in standard deductions for single filers and joint filers. For an example of standard deductions in 2015, here’s a list from Bankrate.
Trump’s tax policy would increase single filers’ standard deductions to $25,000 and joint filers’ standard deductions to $50,000. Essentially, a standard deduction is the amount that non-itemizers can claim on their taxes, dependent on filing status. You can either choose itemized deductions or a standard deduction. This increase in standard deductions will mean much more money in the pocket of the average non-itemized taxpayer.
This tax policy plan would also repeal the alternative minimum tax. This is an additional form of income tax that the United States’ government layers on for certain individuals, corporations, etc. that have exemptions or special circumstances allowing for lower payments on the standard income tax. This is an important step as the AMT was originally created to keep wealthy taxpayers from finding loopholes, but ended up hurting the middle class significantly.
Finally, the last point of this tax policy that we will individually address is the repeal of federal estate and gift taxes. An especially despicable tax, the estate tax focuses on the transfer of wealth post-death, and the gift tax focuses on transfer of money or property during your lifetime. These taxes harm the average American family that simply wants to transfer wealth from family member to family member.
Say that your grandparent passes away, and in their will, you are given their house. With the federal estate tax, you would be required to pay tax dollars on this house. Or, if your parents simply wanted to give you a sum of money or a piece of land, the giving party could be required to pay taxes on this gift. Repealing these corrupt taxes will not only help the typical American family, but it would also get rid of a bit of unethical taxation in this country.
Trump’s tax cuts are starting to be embraced by several members of Congress. Even Senator Chuck Schumer, an incoming Democratic leader, is considering acceptance of some of Trump’s points in order to further compromise. As the months go on, we’ll see how Trump’s tax plan plays out as it is taken up in Congress.
Although Trump’s tax cuts are being debated by many, it is clear that these tax cuts would significantly affect the ordinary American family by helping keep more money in their pockets. As we continue to break down the other main points of Trump’s tax policy, we’ll begin to see how the pieces fit together and the effect this policy would have on our economy.