On Wednesday April 26, 2017, members of the Trump administration announced a new tax reform proposal designed to create economic growth and jobs. The core of the very un-fleshed out proposal as it pertains to individual taxpayers is as following:
- Reduce tax brackets from 7 to 3 with the top bracket going down to 35%
- Double the standard deduction
- Add tax relief for families with childcare expenses
- Repeal the Alternative Minimum Tax and the Estate Tax
- Repeal 3.8% ACA tax to small businesses and on investments
In remarks at their press conference today, Treasury Secretary Steven Mnuchin said that as part of doubling the standard deduction, all itemized deductions other than mortgage interest and charitable deductions would no longer be deductible. Below is a list of deductions no longer available if this plan passes.
- Job expenses paid by workers would no longer be deductible
- State and local taxes (including real estate taxes) would no longer be deductible
- Medical expenses would no longer be deductible
Medical expenses are not often deducted as they must be over 10% of a taxpayers adjusted gross income in order to be deductible. State and local taxes generally kick in on an itemized form in scenarios where a taxpayer lives in a high state tax state or has real estate taxes. Job expenses in many cases are unreimbursed to union workers and those expenses can be deducted off of a tax return subject to 2% of adjusted gross income. While this plan does double the standard deduction, many union workers have income levels that would still put them into an itemized form with their mortgage interest in larger metropolitan areas where unions generally thrive. That effectively puts the bigger part of these tax cuts on the backs of union workers to pay for.
As an example, the following expenses that are currently deducible by union workers if they are itemizing would no longer be deductible under the new proposal:
- Union Dues and Assessments
- Travel to a 2nd Job
- Uniforms and Protective Equipment
- Tools, Equipment & Supplies
- Regulation Equipment (Law Enforcement)
- On Call Cell Phone Usage
- Seminars, Conventions & Workshops (including some union meetings)
- Car expenses during working hours
As a former union member myself, I always recommend union workers to use a licensed tax professional when filing their taxes. There are many nuisances that can either help or hurt a tax refund or liability. Just like unions like to have each trade handle their own speciality, taxes should be left to tax specialists as well. Unknown to many filers is that over 57% of tax preparers have no license whatsoever. That is the equivalent of a non-union worker coming onto a union job site. They are less trained, no higher accountability, no testing.
Back to the newly released tax plan
The biggest beneficiary by far from this tax plan is business. Business tax rates will fall from 35% to 15% across the board. According to the Committee for a Responsible Federal Budget, the business tax reduction will add 3.7 trillion dollars to the US deficit. And the only decrease to the US deficit in the plan is the elimination of the itemized deductions mentioned here. The elimination of these deductions will decrease the deficit by 2.0 trillion dollars.
Hedgies and rich folks gain massive advantages in this plan (along with Trump himself)
Along the campaign trail, President Trump promised to get rid of the benefit for hedge fund managers and private equity managers called carried interest. Carried interest is essentially the way their income is classified so that they pay 15% income tax instead of the rate from appropriate tax bracket (typically a much higher one on these individuals who are among the top earners in the country). Carried interest is how Warren Buffet, Mitt Romney and thousands of other wealthy people pay a lower tax rate than some of the middle class.
This proposed plan forgets about that campaign promise and let’s these folks continue to get a better deal than average hard working Americans. Additionally, President Trump himself (according to his leaked 2005 tax return) paid $31 million dollars for that year in alternative minimum tax which he would save under this new plan. Take what you like from these points and leave what you don’t. My intent is not to take political positions, just to explain the facts.
A little bit about me
I have been an entrepreneur for over 20 years in various industries. From 1999 until 2005 I was employed by the NYC Department of Sanitation as a unionized Sanitation Worker and Supervisor. This job enabled me to provide for my family and launch my businesses. I often miss those good old days however I love being an entrepreneur. I’ve put together my latest venture, Happy Tax in a way to enable others to start their own business while working a job. For some, that might mean that they want to leave their job to focus on their business someday. For others, they just may want to earn extra money to save for retirement, college or vacations.
In fact, I started my tax business when I was a union sanitation worker in NYC. I had a great built in base of clients as my fellow union workers and built a nice following. In our current business, we’ve made it even easier for people to get started. Our franchisees and independent contractors source tax returns using our technology, training, marketing and support and we have a group of US based licensed CPA’s who prepare the tax returns and a client service team to answer any questions and facilitate electronic signatures.
We’ve gotten off to a great start. In 18 months or so of awarding franchises, over 300 partners have joined us in over 40 states. In March, we were ranked by Entrepreneur Magazine on their Fastest Growing List. We have a world class team of industry experts, entrepreneurs and CPA’s. Our Advisory Board and Board of Directors is stacked with an impressive group of businesspeople from diverse industries. I have personally invested over 1,000,000 into this venture and we are growing quickly.
In order to accelerate that growth and enable others to share in our future success, we have a JOBS Act equity crowdfunding campaign that we recently launched. It gives investors the ability to get in on the ground floor of an early stage company and also comes with perks at certain investment levels that include getting a franchise of your own along with the investment.
I invite you to take a look at the offering in the link below. You can invest as little as $100 and as much as $100,000. The more you invest, the more you will own of our company. We are closing the round soon to focus on our companies growth. Thank you for considering us. We are empowering others to live the American dream of entrepreneurship. From my humble roots, I am forever thankful to my union brothers and sisters whom I started down this path. Happy investing. ;)