TRUMP and a Changing Tax Landscape
With the election of Donald J. Trump as the 45th President of The United States of America on November 8th along with GOP control of both the House of Representatives and the Senate, our country is now in a position with an aligned party to eliminate gridlock (possibly?). While tax reform has been a major goal for politicians over the past decade, government gridlock has left us with mere “extenders” agreed upon late in each year.
When the 115th Congress convenes in January 2017, the House Republicans Blueprint for Tax Reform, (“Blueprint”) released on June 24, 2016 can be expected to be the starting point for future House Republican tax reform efforts. The Blueprint proposes to reduce tax rates for individuals and businesses and to move the U.S. tax system to a system similar to a consumption-based tax system through revisions to the income tax rules (without providing a value added tax or national sales tax). The Blueprint is the most recent proposal of several proposals released as part of House Speaker Paul Ryan’s “A Better Way” initiative, which overlaps with Trump’s tax reform plan.
Summary of the Blueprint’s Proposals
Proposed changes applicable to individuals include measures to:
- Replace the current seven tax brackets for individuals with three brackets of 12%, 25%, and 33% (each indexed for inflation), lowering the top individual income tax rate to 33%.
- Deduct half of individual’s net capital gains, dividends, and interest income (leading to rates of 6%, 12.5%, and 16.5% on such income depending on the applicable rate bracket)
- Repeal the individual alternative minimum tax (“AMT”).
- Provide a larger standard deduction and an enhanced child and dependent tax credit by consolidating the current standard deduction, additional deduction, and personal exemption for a taxpayer, spouse, children and dependents, and child tax credit.
- Eliminate all itemized deductions, except the mortgage interest and the charitable contribution.
- Repeal the estate and generation-skipping transfer taxes.
- Simplify and consolidate current tax benefits relating to education. Continues existing tax incentives for retirement savings, and explores the creation of more savings vehicles.