CCH Tax Day Report
During the campaign, President-elect Trump made a number of tax reform proposals for individuals and businesses. Some of Trump’s proposals, especially consolidation of the individual income tax rates, are similar to proposals made by congressional Republicans. Other proposals are unique to the president-elect. Additionally, President-elect Trump has said he will call for a special session of Congress to repeal the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148).
Tax Proposals for Individuals
In September, President-elect Trump outlined a consolidation of the seven current individual income tax rates. Trump proposed three rates: 12, 25 and 33 percent. The top rate would be significantly less than the current top rate of 39.6 percent. Higher-income individuals would also be affected by repeal of the net investment income (NII) tax, presumably part of total repeal of the PPACA.
Comment. Trump’s tax plan for lower and compressed rates is closely aligned with the Republican “Better Way” tax reform blueprint released in June. The GOP blueprint, too, proposes three income tax rates of 12, 25, and 33 percent.
House Democrats, however, will likely be at odds with Trump throughout tax reform discussions, as many have already spoken out against the GOP blueprint’s similar proposals.” Its general direction is clear: huge, unpaid for tax cuts mostly directed to the wealthy,” House Ways and Means ranking member Sander Levin, D-Mich., said after the blueprint’s release.
Individuals also would see an increase in the standard deduction under Trump’s plan. The president-elect has proposed to increase the standard deduction to $15,000 for single individuals and to $30,000 for married couples filing a joint return. For itemizers, Trump has proposed capping itemized deductions at $100,000 for single individuals and at $200,000 for married couples filing a joint return.
Comment. According to the nonpartisan Tax Policy Center’s (TPC) analysis, increasing the standard deduction would reduce the number of itemized deductions currently taken by taxpayers. “Twenty-seven million (60 percent) of the 45-million filers who would otherwise itemize in 2017 would opt for the standard deduction,” the TPC estimates. “Repealing personal exemptions and the head-of-household filing status, however, would cause many large families and single parents to face tax increases.”
For families, the president-elect proposed several new tax incentives. One would create Dependent CARE Savings Accounts (DCSAs). Another proposal would provide “spending rebates” to lower-income families for childcare expenses.
Comment. Rep. Steve Israel, D-N.Y., introduced the Americans Giving Care to Elders (AGE) Bill of 2016 (HR 5196) earlier in 2016. The bill would amend the Code to give caregivers a tax credit of up to $6,000 of the caregiver expenses incurred for their parents (or ancestors of such parents). A related Senate measure, Sen 879, was introduced in 2015.
Patient Protection and Affordable Care Act
President-elect Trump promised during the campaign that if elected he would repeal the PPACA. Presumably, this includes all of the various components of the measure, including the Health Insurance Marketplaces, the SHOP Marketplace, tax credits for small employers, the premium assistance tax credit, and reporting requirements for employers and insurers. More details are expected in coming days and weeks about Trump’s PPACA repeal plans. While the House has voted numerous times in recent years to repeal the PPACA, moving a repeal bill through the Senate is expected to be a challenge.
Estate and Gift Taxes
The federal estate tax could be one of the president-elect’s initial tax reform proposals. During the campaign, Trump called for repeal of the federal estate tax. Repeal is expected to receive a warm reception in the GOP-controlled House but would face an uncertain future in the Senate. Trump has also proposed to require a carryover basis regime for assets inherited from estates above certain amounts (both $5 million and $10 million estates have been mentioned).
Comment. House Republican taxwriters will be in agreement with Trump’s proposal to eliminate the estate tax. “Our tax reform blueprint fully repeals the estate tax,” Ways and Means Committee Chairman Kevin Brady, R-Tex., told Wolters Kluwer.
Levin, however, proposes returning the estate tax to 2009 levels. Earlier in 2016, Levin introduced the Sensible Estate Tax Bill of 2016 (HR 4996). The measure “would both lower the exemption for the estate tax and increase the maximum tax rate to 45 percent,” Levin’s press secretary told Wolters Kluwer.
Tax Proposals for Businesses
On the business front, President-elect Trump has described a number of proposals in broad terms. Trump proposed to reduce the corporate tax rate from 35 percent to 15 percent with some accommodation for pass-through entities within that rate structure. Trump also called for tax simplification for small business owners along with an increase in Code Sec. 179 expensing. He also called for a repatriation tax holiday.
According to the TPC, Trump’s plan in its entirety would reduce federal revenue by $6.2 trillion over the first 10 years, not accounting for macroeconomic effects or reduced interest costs. “The marginal tax rate cuts would boost incentives to work, save, and invest if interest rates do not change,” the TPC summarized. “Increased investment could raise labor productivity and U.S. wages by increasing capital per worker,” the TPC said.
According to the nonpartisan Tax Foundation’s analysis, Trump’s plan is estimated to reduce federal revenue between $4.4 trillion and $5.9 trillion on a static basis. Trump’s plan” would also significantly reduce marginal rates and the cost of capital, which would lead to higher long-run levels of GDP, wages, and full-time equivalent jobs,” the Tax Foundation summarized.
Inauguration and New Congress
President-elect Trump will take office Friday, January 20, 2017. The 115th Congress will convene for the first time on January 3, 2017.
By Jessica Jeane, George Jones and George Yaksick, Jr., Wolters Kluwer News Staff