The White House released the “core principles” of President Trump’s tax plan on Wednesday, April 26, led in a press briefing by Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn.
Secretary Mnuchin stated the “core principles” would be worked on with Congress to produce a bill that can be passed. In answer to questions, he said the plan “would pay for itself through economic growth, and by reducing tax deductions and closing loopholes.”
Director Cohn and Secretary Mnuchin stated throughout the briefing that many details were still to be negotiated. Trump’s new tax plan could vastly reduce the amount paid by corporations and individuals across the U.S.; however, crucial details of the new plan remain unknown. Here is what we do know:
Tax reform goals:
- Grow the economy and create millions of jobs
- Simplify our burdensome tax code
- Provide tax relief to American families—especially middle-income families
- Lower the business tax rate from one of the highest in the world to one of the lowest
For business taxpayers:
- The business tax rate would decrease from 35% to 15% for corporations, and the top tax rate for pass-through businesses (e.g., partnerships, sole proprietorships) would be reduced from 39.6% to 15%.
- There would be a one-time repatriation tax on offshore earnings. The exact percentage of the tax rate is still being negotiated; previous reports indicated 10% was being considered.
- There would be a shift from a worldwide system of taxation (under which a U.S. taxpayer is taxed on its worldwide income regardless of where it was earned) to a territorial system (under which income would be taxed in the country where it is earned).
For individual taxpayers:
Tax relief to American families—especially middle-income families:
- The current seven income tax brackets would be reduced to three: 10%, 25% and 35%. The levels at which these brackets would apply have not yet been determined.
- The standard deduction would be doubled, with the intended result being that fewer taxpayers would itemize.
- Eliminate tax deductions that “mainly benefit the wealthiest taxpayers” other than the mortgage interest and charitable contribution deductions. Interestingly, state and local taxes would no longer be deductible.
- Repeal the alternative minimum tax.
- Repeal the estate tax.
- Repeal the 3.8% net investment income tax (which was enacted as part of the Affordable Care Act).
It is stated that during the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input. The Administration will also continue to work with the House and Senate to develop the details of a plan that provides massive tax relief, creates jobs, and makes America more competitive—and can pass both chambers. No firm deadline was placed on the proceedings.
With many details to iron out, we will need to wait and see what emerges during the legislative process. Yeo & Yeo will keep you informed as new details unfold.