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The Outline of a Trump Tax Cut: Can It Be Revenue Neutral Over 10 Years?

ArmchairPolitiicianTaxCuts, April 25, 2017, by Brad Peery, brad@ArmchairPolitician.US, www.ArmchairPolitician.US

The Trump tax plan is only an outline that will facilitate discussion within the Congress.

Included in the Trump tax package is a reduction of the corporate tax rate from 35% to 15% would reduce corporate taxes in 2017 to $147 billion from the $343 billion, a drop from 9.9% of revenues to 4.2% of revenues, a 5.7% decline.

There is discussion of reducing the tax rate to 15% for small businesses that report their income on personal tax returns, such as limited liability companies, and subchapter S corporations. Although these would be business tax cuts, they are really reductions of personal income taxes. Personal tax brackets would be reduced from seven to three. The brackets would be 10 percent, 25 percent, and 35%. The previous top personal bracket was given as 39.6%. The expectation is that this will provide tax reductions for everyone, particularly middle income taxpayers. There was no information about the personal income levels that would trigger these tax bracket rates, so the revenue impact of these tax reductions is uncertain.

The standard deduction was doubled for a married couple to $24,000. Another objective of the tax plan is to simplify the filing process. A move in that direction is the elimination of the Alternative Minimum Tax, which has in the past targeted high income taxpayers.

Repealed is the 3.8% Obamacare tax. This tax illustrates the soak the rich attitude of the Obama administration, and the complexity they were happy to introduce to the tax code.

The 3.8 percent surtax on investment income, was meant to help pay for healthcare, and went into effect in 2013. It is the first surtax to be applied to capital gains and dividend income and was estimated by the executive branch to provide about $32 billion per year of Obamacare financing over 10 years. Obamacare also took money from Medicare to finance a health plan that is now failing. The tax affects only individuals with more than $200,000 in modified adjusted gross income (MAGI), and married couples filing jointly with more than $250,000 of MAGI. The tax applies to a broad range of investment securities ranging from stocks and bonds to commodity securities and specialized derivatives. The 159 pages of rules show the complexity of the law, and spell out when the tax applies to trusts and annuities, as well as to individual securities traders.

Overseas American companies are charged taxes as if they were located in the U.S. Any excess of U.S. taxes over local taxes must be paid if the money comes back into the U.S. A one-time lower tax is proposed to encourage the repatriation of those trillions of dollars to the U.S. to encourage investment and job growth in the U.S.

Estate and gift taxes are estimated to be $22 billion in 2017. The tax plan repeals the estate tax, also known as the “Death Tax,” which applies to the transfer of property of a deceased person.

ArmchairPolitician.US Opinion: The Trump Tax Plan is a step in the right direction. Changes are likely to be made by the Congress to make it less costly, such as making the corporate rate 20% and raising the tax on small business to 25%. Important will be the level incentives that will be offered to businesses to repatriated their foreign earnings to the U.S. Also, if the Obamacare replacement bill passes the Congress and is signed into law, reduced federal support for healthcare might save as much as $1 billion, and make it easier for the tax reduction bill to not reduce the deficit over 10 years, and make the tax reductions permanent instead of temporary, ending in the 9th year.

See also March 5, 2017 Blog: The Trump Tax Cuts Are Coming: Will the Deficit Increase?

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