As we hear more about our nation’s giant debt and emerging budget, tax reform has now entered the arena. While both sides wave their red capes in front of our charging bulls and bears, let’s at least try to gain a glimpse of what kind of tax reform is being proposed. How will tax reform, among the other giants, affect our own ability to hold on to more of our purse and possessions?
Some say it will only help the rich, where others say it will help us all on “Main” street. The core belief and goal from Trump is the tax reforms will 1) bring relief for middle class Americans by keeping more of their money and increase after-tax wages, 2) simplify our tax code and American headaches when preparing their taxes, 3) grow our nation’s economy by discouraging corporate inversions, meaning companies relocate their corporate headquarters outside of the US. The White House believes this will add a huge number of new jobs and make us globally competitive again, and 4) not add to our nation’s debt and deficit (which is over $20 trillion right now).
Let’s now see how they hope to accomplish all this. According to Market Watch (Full text of Trump administration tax reform principles, 4/26/17) the main points offered for individuals by the White House include 1) Reducing the 7 tax brackets to 3 tax brackets of 10%, 25%, and 35%, 2) double the standard deduction, and 3) relief for families with child and dependent care expenses. In addition, tax codes will be simplified by 1) eliminating targeted tax breaks that mainly benefit the wealthiest taxpayers, 2) protect the home ownership and charitable gift tax deductions, 3) repeal the Alternative Minimum Tax, 4) repeal the death tax, and 5) repeal the 3.8% Obamacare tax that hits small businesses and investment income.
For businesses there will be a 15% business tax rate (reduced from 39.6%) making it the lowest in the world, territorial tax system to level the playing field for American companies, one-time tax on trillions of dollars held overseas, and eliminate tax breaks for special interests.
Again, according to Market Watch, “. . . the Trump Administration will hold listening sessions with stakeholders to receive their input and will continue working with the House and Senate to develop the details of a plan that provides massive tax relief, creates jobs, and makes America more competitive—and can pass both chambers.”
For more than a few, the question will be, “How can this reform include reducing government spending as well?” Do you believe these reforms will help you keep more of your purse and possessions? What about your business, whether small, medium, or large? In part 2, there will be more discussion about some of the concerns from both Republicans and Democrats. Also, I may throw in some pointers I found for understanding the basic principles of tax reform from a business perspective.