US Republicans roll out tax reform plan
Business owners win
WASHINGTON, Sept 27, (Agencies): Donald Trump’s Republican Party on Wednesday rolled out a plan to reform America’s tax code, calling for deep cuts to corporate rates and the abolition of inheritance tax in a high stakes bid to salvage the president’s agenda.
“This is our best opportunity in a generation to deliver real middle-class tax relief, create jobs here at home, and fuel unprecedented economic growth,” House Speaker Paul Ryan said in a statement unveiling the plan.
“It has been 31 years since we last got this done, and hardworking families and small businesses cannot afford to wait any longer.”
Developed in tandem with Trump’s White House, the Republican plan calls for slashing the US corporate tax rate from 35 to 20 percent — to below the 22.5 average of the industrialized world, it says.
For households, the number of tax brackets would be reduced from seven to three, with a maximum rate of 35 percent, against 39.6 at present, although the plan also mentions the “potential” for an additional top rate for the highest-income taxpayers.
Overhauling the tax system has long been a political Holy Grail for the Republican Party. It was also a major Trump campaign pledge, which has taken on extra importance after his efforts to enact promised healthcare reform and build a border wall stalled.
Trump himself will be promoting the Republican plan during a speech in Indiana later on Wednesday.
The president and his party want to simplify the thousands-of-pages-long US tax code — to enable Americans to fill out their return on a postcard, runs the refrain.
That involves the elimination of countless loopholes and deductions.
Under the Republican plan, only two highly popular deductions are explicitly protected: for interest paid on home mortgages and for charitable contributions. Lawmakers will hammer out precisely which deductions will survive under the reform in the coming months.
Inheritance tax would be scrapped altogether — a longstanding demand of Republicans who refer to it as the “Death Tax.”
Firms
The tax framework also seeks to encourage firms to bring back profits that have accumulated abroad by offering a one-time, low tax rate on wealth brought back from overseas.
“This is our once-in-a-generation opportunity to fundamentally rethink our tax code. We can unleash the economy — promoting growth, attracting jobs, and improving American competitiveness in the global market,” said Senate Majority Leader Mitch McConnell, R-Ky. “We can lower taxes for individuals and families, so hardworking Americans are able to keep more of their hard-earned money.”
But a battle is already brewing among Republicans over a move to eliminate the deduction for state and local taxes, which is especially valuable to people in hightax states such as New York, New Jersey and California. Republicans from those states are vowing to fight it.
It retains existing tax benefits for college and retirement savings such as 401(k) contribution plans.
The individual tax rates would be 12 percent, 25 percent and 35 percent — and the plan recommends a surcharge for the very wealthy. But it does not set the income levels at which the rates would apply, so it’s unclear just how much of a tax change there might be for a typical family.
The plan would seek to help families by calling for an increased child tax credit and opening it to families with higher incomes. The credit currently is $1,000 per child.
Also proposed is a new tax credit of $500 to help pay for the care of the elderly and the sick who are claimed as dependents by the taxpayer.
The estate tax — which is paid by those with multimillion-inheritances — would be eliminated, a boon for wealthy individuals who inherit businesses, investments and real estate.
The plan has more winners than losers, largely because Trump is leaving it to Congress to figure out how to pay for it — or whether to pay for it.
The winners
Corporations. Trump’s plan would lower the top corporate income tax rate from 35 percent to 20 percent. This would be a huge tax cut for most corporations, even if their tax breaks are severely limited.
Business owners who report business income on their individual tax returns. This is the overwhelming majority of American businesses, from small mom-andpop outfits to large partnerships. The top tax rate for these taxpayers is currently 39.6 percent. Trump’s plan would lower the top rate to 25 percent.
The superrich. Trump’s plan would eliminate the federal estate tax. Under current law, the first $11 million of an estate is exempt for a married couple, meaning only the wealthiest Americans pay it.
US-based international corporations. Trump’s plan would end the US practice of taxing the foreign profits of US-based corporations. Under current law, the money is taxed if it is brought back to the US.
The middle-class — maybe. Trump’s plan would increase the standard deduction to $12,000 for individuals and $24,000 for a married couple, presumably eliminating the personal exemption. Under current law, the personal exemption is $4,050 and the standard deduction is $6,300, for a total of $10,350.
This provision would allow middle-class families to shield more of their income from taxation. However, it’s impossible to say how they would fare overall because Trump’s plan doesn’t specify the income levels for each tax bracket. Administration officials said Trump’s plan would be “at least as progressive as the current tax code.”
The losers
The national debt. Trump’s plan doesn’t include enough details to precisely project its impact on the government’s finances. But the rate cuts for businesses and individuals are sure to add to the nation’s mounting debt. Administration officials said the plan would not add to the debt, when economic growth is taken into account. However, many experts say the administration’s projections for economic growth are unrealistic.
Taxpayers who itemize their deductions. About 30 percent of US taxpayers itemize their deductions. The rest take the standard deduction. Trump’s plan would eliminate most itemized deductions, with the exception of deductions for mortgage interest and charitable donations. If Trump’s plan became law, many of these taxpayers would probably start taking the larger standard deduction.