- September 6, 2017
- Posted by: Phil Drudy
- Category: Blog, News
U.S. Treasury Secretary Steven Mnuchin said on August 31, 2017 that President Donald Trump’s administration has a detailed plan on tax reform and is on track to get it through Congress by year-end.
President Trump has asked for a corporate tax rate of 15 percent, down from its current 35 percent. He also wants to cut the income tax for middle-income families. He has asked for a one-time repatriation of corporate profits earned overseas.
Even with Mnuchin’s statement and President Trump’s optimism regarding implementation of these tax changes, there is still a long way to go from Trump’s plan to the tax changes becoming law. But with that in mind, the following are some salient points for Trump’s proposed tax reform.
Corporate Tax Rates
Trump’s plan would lower the maximum small business and corporate tax rate from 35 percent to 15 percent. The United States has one of the highest corporate tax rates in the world. The plan extends that tax rate to partnerships, real estate companies, hedge funds and private equity funds.
The plan advocates a “territorial” tax system. It would exclude the income that businesses earn overseas.
Individual Tax Rates
Trump’s plan would reduce the current seven tax brackets to three. The top bracket would be taxed 35 percent, the middle rate would be 25 percent and the lowest rate would be 10 percent.
The plan eliminates all itemized deductions except for those on mortgage interest and charitable contributions. It would double the standard deduction for everyone. The deduction for Married and Joint Filers would rise from $12,700 to $24,000. Single filers’ deduction would increase from $6,300 to $12,600.
The tax plan eliminates personal exemptions. The exemption allows taxpayers to subtract $4,050 (2016 and 2017 rate) from income for each person claimed on the tax return. Elimination of the exemption may affect families with many children who could pay more in tax despite the increase in the standard deduction rate.
Trump’s tax plan includes a 10% tax on repatriation of foreign-earned income, instantly bringing trillions of dollars back into the U.S. economy now parked overseas. That would get corporations to bring money back into the United States. It might also keep companies in this country.
Once monies are repatriated, there would appear to be significant investment areas to be considered. More money flowing into the economy portends noteworthy financial opportunities. Inflationary pressures could return as part of increased money supply and a rapidly growing economy.
What does all of this mean for you?
This is a good time to meet with your tax professional and wealth advisor to determine a strategy that is best for you.
It might be a good opportunity to look at your short term and long term investments as well as debt instruments. Interest rates could rise slowly or they could jump quickly given the prolonged stretch of inactivity because of artificial constraints.
President Trump has said that tax reform will give families and businesses more money to spend and that will boost economic growth. Economists point out that a direct result of economic stimulation and growth will be a rise in interest rates and an increase in the inflation rate.
Smolin professionals are available to help you with your tax and investment planning. Let us help you determine a path forward, given the uncertainties inherent with tax changes.