Trump’s administration released their proposed tax plan with few details in a one page memo outlined with broad goals and few details. If passed, it could dramatically change the way Americans pay taxes and would be the biggest overhaul in the federal taxation system since 1986. The White House said one of the main goals for tax reform is to “simplify the burdensome tax code.”
Below is a copy of the memo they released:
Trump’s Administration Goals for Tax Reform
- Grow the economy and create millions of jobs
- Simplify our burdensome tax code
- Provide tax relief to American families—especially middle-income families
- Lower the business tax rate from one of the highest in the world to one of the lowest
- Tax relief for American families, especially middle-income families
- Reducing the 7 tax brackets to 3 tax brackets for 10%, 25% and 35%
- Doubling the standard deduction
- Providing tax relief for families with child and dependent care expenses
- Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers
- Protect the home ownership and charitable gift tax deductions
- Repeal the Alternative Minimum Tax
- Repeal the death tax
- Repeal the 3.8% Obamacare tax that hits small businesses and investment income
- 15% business tax rate
- Territorial tax system to level the playing field for American companies
- One-time tax on trillions of dollars held overseas
- Eliminate tax breaks for special interests
Since they are proposing a larger standard deduction it would eliminate the need for itemized deductions, streamlining the tax filing process. At first glance the proposed plan appears to be very regressive, returning back to the basics and helping to simplify the tax filing process. Although the reform would reserve the majority of the benefits for wealthier individuals, it would streamline the tax filing process for most Americans. Read below for more details on the main changes proposed in his memo.
Reduce The Number of Tax brackets
Trump’s proposed plan will reduce the number of tax brackets for individuals from seven to three: 10%, 25%and 35%. The current top rate will drop from 39.6% to 35%. This proposal will lower the top rate by nearly 5%, easing the tax burdens on most Americans, including the rich. They did not clarify which income ranges would apply to the proposed brackets.
Double The Standard Deduction and Reduce Itemized Deductions
Americans can expect a sizable increase to the standard deduction allowed when filing taxes, permitting taxpayers to keep more of their income. Under the proposal, tax breaks for individuals and married couples filing separately will increase from $6,350 to $12,700. The standard deduction for a married couple filing jointly will jump from $12,700 to approximately $24,000. This is intended to put more money in the pockets of the average taxpayers who do not itemize their deductions. It has the added benefit of simplifying the preparation of tax returns for more people.
Under the new plan, tax breaks for charitable giving and mortgage interest would remain in place.
Repeal of Estate Tax and the Alternative Minimum Tax
Trump is proposing that the estate tax, also known as the death tax, will end. The Tax Foundation states that America’s estate tax is the fourth highest in the world. The Alternative Minimum Tax (AMT) is a complicated additional system of taxation that follows different guidelines than standard tax. The AMT currently requires certain taxpayers to calculate their liability twice and pay the higher amount, which more often than not applies to wealthier taxpayers earning several thousand dollars or more annually.
Businesses Catch a Break
The U.S. corporate tax rate is currently 35%, which is one of the highest marginal corporate tax rates among the world’s industrialized nations. The administration proposes to cut the tax by a staggering 20%, one of the most aggressive moves in the plan. Under the plan, small businesses would be included in this tax reduction.