President Trump on Wednesday proposed a dramatic overhaul of the tax code, calling for sharply lower rates for individuals and businesses but also eliminating key tax breaks.
The proposal is a one-page outline — key details are left incomplete — but it presents an initial offer to begin negotiations with lawmakers, as White House officials think reworking the tax code is one of their biggest priorities to boost economic growth.
“We have a once-in-a-generation opportunity to do something big and important on taxes,” White House National Economic Council Director Gary Cohn said Wednesday.
White House officials are ambitious, but the path to overhauling the tax code is riddled with political land mines. Many budget experts say they believe the White House’s plan would reduce federal revenue by so much that it would grow the debt by trillions of dollars in the next decade, growing interest costs and slowing the economy.
And Trump’s advisers are looking to ax some tax breaks that are very popular in certain states, including the deduction Americans take for the state and local taxes they pay separately each year. Eliminating this deduction could save more than $1 trillion over 10 years but inflame lawmakers and governors in states that have high income tax rates.
The central feature of the White House’s plan would be a big reduction in tax rates for virtually all Americans and businesses.
It would eliminate the seven existing income tax brackets and replace them with three brackets, containing new rates of 10 percent, 25 percent and 35 percent, based on someone’s income. White House officials haven’t specified which income levels would hit the higher tax brackets, as they see that as part of ongoing discussions with Capitol Hill.
It would also roughly double the standard deduction that Americans can use to reduce their taxable income. The deduction for married couples would move from $12,600 to $24,000. This would incentivize people not to itemize their tax returns and instead use the standard deduction, simplifying the process and potentially saving taxpayers thousands of dollars each year.
The White House plan would eliminate the alternative-minimum tax and the estate tax, provisions that raise billions of dollars each year but have long been the target of Republicans seeking to rip up the tax code. Cohn, speaking of the AMT, said “we don’t think that people should have to do their taxes twice,” and added that the estate tax unfairly prevented farmers and others from passing along their businesses to the next generation.
To offset some of the cost of the lower rates, Trump administration officials said they were proposing to eliminate virtually all tax deductions that Americans claim, provisions that they argued primarily benefited wealthier Americans. Cohn said they would preserve tax breaks that incentivize homeownership, retirement savings and charitable giving. But almost all others would be jettisoned.
This includes the tax deduction people can claim for the state and local taxes they pay each calendar year. These taxes can be particularly high in states with higher income taxes, such as California and New York.
“It’s not the federal government’s job to be subsidizing the states,” Mnuchin told reporters at the briefing with Cohn. “It’s the state’s independent decision as to do what they want to tax.”
Some of the White House’s tax changes would benefit the wealthy, such as the elimination of the estate tax, while other changes would benefit the middle class and lower-income Americans.
For businesses, Trump’s proposal would lower the corporate tax rate from 35 percent to 15 percent, and it would also allow smaller businesses, structured in such a way that they are affected by the individual tax rate, to also use the 15 percent threshold. There are millions of these businesses, known as “S corporations,” and they are often small, family-owned firms. full story
This looks very good for taxpayers. I like the idea of taking away the deduction for state taxes because that puts the pressure on the governments of those high-tax states (like California) to lower their taxes instead of the rest of the nation’s taxpayers have to pay for them. And lowering the corporate tax rate will allow businesses to keep more money to hire! Math can be fun when there’s less socialism! @RhettOctober