Trump Tax Reform…will it really help us? Part 2

Trump Tax Reform…will it really help us? Part 2

posted in: CYJ Blog, Lifeskills, Possessions | 0

Doesn’t it seem almost impossible to not only understand about tax reform on a national level, let alone predict how it will impact any of us? Do you believe any of the proposed reforms will help you keep more of your purse and possessions? What about your business, whether small, medium, or large?

There are more than a few Republicans and mostly Democrats who share concerns about whether the tax reforms offered will hurt rather than help. According to Trump’s plan, the White House goals include tax relief for middle class Americans; simplify the tax code to reduce tax preparation and let everyone keep more of their money, grow our economy by discouraging corporate inversions, adding a huge number of new jobs, and making America globally competitive again; and won’t add to our national debt and deficit. These goals will be achieved by doing the following:

  1. If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households – over 50% – from the income tax rolls. They get a new one page form to send the IRS saying, “I win,” those who would otherwise owe income taxes will save an average of nearly $1,000 each.
  2. All other Americans will get a simpler tax code with four brackets – 0%, 10%, 20% and 25% – instead of the current seven. This new tax code eliminates the marriage penalty and the Alternative Minimum Tax (AMT) while providing the lowest tax rate since before World War II.
  3. No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.
  4. No family will have to pay the death tax. You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.

The White House believes these goals and ways to achieve them is actually revenue neutral. What does this mean? They say any revenue shortfall via tax cuts will be fully paid for by (1) Reducing or eliminating most deductions and loopholes available to the very rich, (2) A one-time deemed repatriation of corporate cash held overseas at a significantly discounted 10% tax rate, followed by an end to the deferral of taxes on corporate income earned abroad, and (3) Reducing or eliminating corporate loopholes that cater to special interests, as well as deductions made unnecessary or redundant by the new lower tax rate on corporations and business income. They will also phase in a reasonable cap on the deductibility of business interest expenses.

Can we really believe these lofty promises? And do any of us really understand some of the basic principles of tax reform, particularly from a business perspective? According Sean Hackbarth, Trump Administration Steps Up to the Plate with Tax Reform Plan (April 28, 2017), “The U.S. Chamber’s tax expert welcomed it, calling it, “the start of the conversation.” The Chamber seems to feel the Trump administration is “. . . stepping up to the plate and engaging and working towards pro-growth tax reform . . .” as stated by Caroline Harris, chief tax council and vice president for tax policy. Harris brought up three basic principles of tax reform: Permanence; moving to a territorial system; and appropriate transition rules. Harris and Hackbarth continued to clarify as follows:

  1. “’Businesses want certainty; they want permanence,’ Harris said. Knowing what to expect will help companies determine how to best deploy investments and hire workers.
  2. ‘We need to shift to a territorial system, which is something we heard from the Trump White House talk about,’ Harris explained. ‘If you have a territorial system you’re not subjecting cash to that extra layer of tax when you bring it back to the United States, and it frees that capital up going forward.’
  3. ‘Businesses also need time to change how they operate to respond to changes in the tax code,’ said Harris. Reform should avoid causing unnecessary business disruptions.”
    In the week ahead, consider these tax reform proposals as well as these basic principles of tax reform for your own business and family. In part 3, we will hear concerns from others about the impact on the deficit and the wealthy “gaming the system.”