Trump and Taxes — Proposals for Reform

President-elect Trump outlined a tax policy in his campaign that focused on reducing both individual and corporate tax rates, as well as eliminating the estate tax. Almost two weeks post-election, several sources indicate that the following changes to current tax law might be proposed in the coming years of his presidency.

Business Tax Reform

Most sources indicate that President Trump will propose a corporate tax rate of 15% in order to (i) protect small business owners taxed as C-corps from excessive tax at the entity level and (ii) reverse the effects of corporate inversion that have occurred over the past several years.

Other corporate incentives also include: (i) the ability of U.S. manufacturing businesses to expense capital investment, (ii) a one-time repatriation tax of 10% on corporate profits coming back to the U.S., and (iii) an increase in the business tax credit allowable for corporations that provide on-site childcare.

Individual Tax Reform

President Trump will propose a simplified three-tiered tax structure based on the following adjusted gross incomes for married filing jointly filers (AGIs for single filers will be half of the AGIs listed in each bracket): (i) $75k or less at 12%, (ii) from $75k to $225k at 25%, and (iii) above $225k at 33%. Low income taxpayers will have an effective rate of zero (i.e., taxpayers having an AGI under $50k). The standard deduction will increase to $30k ($15k for single filers). Itemized deductions will be capped at $200k ($100k for single filers). Personal exemptions and the head of household designation will be eliminated. The net investment income tax of 3.8% will be repealed.

Married filing jointly taxpayers with a total income under $500k ($250k for single taxpayers) will be permitted to take an above-the-line deduction for childcare expenses (capped at state averages) for dependents age 13 or younger. This benefit would be limited to 4 children per taxpayer, but would be available for families who use stay-at-home providers (i.e., parents, grandparents or other relatives). Rebates up to 7.65% of certain childcare expenses would be proposed for taxpayers who qualify for the earned income tax credit.

Akin to the HSA concept, Dependent Care Savings Accounts would be proposed for all taxpayers as a means to set aside up to $2k in tax-free dollars per year per individual (including unborn children) for dependent care expenses. Parents, family members and employers may contribute to these accounts. Any remaining funds in a child’s account at age 18 could be used for education expenses. Lower income taxpayers would be eligible for a 50% match on contributions by parents to DCSAs. Taxpayers receiving an earned income tax credit would be able to designate a portion of the credit to a DCSA.

Estate Tax Reform

President Trump will propose the elimination of the current estate tax structure. In its place, he may propose a tax on capital gains above $10 million held until death, except for capital gains attributable to small businesses and family farms.