The 2017/2018 Trump/GOP tax plan

[Snowboarder_Bo]

Well, they want to rewrite the tax laws.

President Donald Trump and congressional Republicans are proposing a far-reaching, $5 trillion plan Wednesday that would cut taxes for corporations and potentially for individuals, simplify the tax system and nearly double the standard deduction used by most Americans.

The plan is sweeping in scope but omits critical, controversial details that are likely to take months to work out in a bitterly divided, GOP-led Congress.

There are some details tho, or at least directions for details to go:

The plan would collapse the number of personal tax brackets from seven to three.

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 doesn’t 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, and whether its taxes would be reduced.

The plan would nearly double the standard deduction to $12,000 for individuals and $24,000 for families. This basically would increase the amount of personal income that is tax-free.

Deductions for mortgage interest and charitable giving would remain, but the plan seeks to end most other itemized deductions that can reduce how much affluent families pay.

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 high-tax states such as New York, New Jersey and California. Republicans from those states are vowing to fight it.

The plan would retain existing tax benefits for college and retirement savings such as 401(k) contribution plans.

It 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. Also slated for elimination is the alternative minimum tax, a supplemental tax for certain individuals, corporations and estates that enjoy exemptions lowering their income tax bills.

Companies would find themselves paying substantially lower tax rates, part of an effort to make U.S. businesses more competitive globally. The plan would impose a new, lower tax on corporate profits stashed overseas, and create a new tax structure for overseas business operations of U.S. companies.

Corporations would see their top tax rate cut from 35 percent to 20 percent. For a period of five years, companies could further reduce how much they pay by immediately writing off their investments.

New benefits would be given to firms in which the profits double as the owners’ personal income. They would pay at a 25 percent rate, down 39.6 percent. This creates a possible loophole for rich investors, lawyers, doctors and others, but administration officials say they will design measures to prevent any abuses.

I know that was a large quote, but I was trying to get as many details that had numbers as succinctly as I could; sorry for the TL;DR-looking block of quoted text, y’all.

Anyway, our various congresscritters are gonna be talking about this now that they’ve conceded their defeat at passing healthcare legislation, so I though it might be interesting for us to talk about too.

My first question is: 3 tax brackets? And that’ll be fair? That’ll cover everything and everyone? :dubious:

[Whack-a-Mole]

“Corporations would see their top tax rate cut from 35 percent to 20 percent.”

I would be surprised if there is a corporation anywhere in the US that is paying 35% now. The effective tax rate (average) for US corporations is 18.6%.

So, if they lower the tax rate to 20% and close deductions will anything change?

[Slash1972]

@Snowboarder_Bo

My first question is: 3 tax brackets? And that’ll be fair? That’ll cover everything and everyone? :dubious:

Wouldn’t that depend on one’s definition of “fair”?

[sleestak]

@Snowboarder_Bo

My first question is: 3 tax brackets? And that’ll be fair? That’ll cover everything and everyone? :dubious:

post snipped (Note, beaten to the punch by manson1972)

First, define ‘fair’.

That is, as far as I can tell, where the conversation goes off the rails as there are many definitions of ‘fair’.

My personal definition, likely to be very different than yours, is that fair means each person pays an equal amount. Since that isn’t really possible due to folks who have no income and people who have very low incomes the next best version of fair is everyone pays a fixed percentage across the board, regardless of income type. I also suspect that doesn’t meet your definition of ‘fair’.

So, before we go any further we have to define what ‘fair’ means.

I suspect that isn’t possible.

Slee

[RTFirefly]

As noted elsewhere, the doubling of the standard deduction is a bit of a sham, since the personal exemption (and the additional deduction for persons over 65) goes away. Per Josh Barro of Business Insider:

Let’s say you are single with no dependents, and you have a moderate income. Currently, you get to take the standard deduction ($6,350) and one personal exemption ($4,050). If you are 65 or older, you also get to take an additional standard deduction ($1,250). That adds to $10,400, or $11,650 if you’re a senior citizen.

The Republican plan would replace all these provisions with a single deduction of $12,000 ($24,000 for married couples.) That’s a 15% increase — except for seniors, who get a 3% increase.

And then your first dollar of taxable income would be subjected to a 12% tax rate, instead of the current 10%.

The numbers for married couples are 2x the numbers for single taxpayers, across the board, so no percentage changes.

The break-even point for singles seems to be $20,000 in income. (Twice that for childless married couples.) Less than that, your taxes are reduced by somewhere between $0 and $160. More than that, and they increase.

Also probably worse off if you have kids, because the per-kid exemption goes as well.

[John_Mace]

@Whack-a-Mole

“Corporations would see their top tax rate cut from 35 percent to 20 percent.”

I would be surprised if there is a corporation anywhere in the US that is paying 35% now. The effective tax rate (average) for US corporations is 18.6%.

So, if they lower the tax rate to 20% and close deductions will anything change?

Lots of things could change. You don’t get your tax rate down form 35% to 18% by doing nothing. Corporations will stop doing those things they do just for the tax break (or loophole, if you will). And they won’t need to expend so much money on paying their legal teams figure all this tax break stuff out.

Now, if you want companies to keep doing those things that get the tax breaks, this won’t be so good.

[Slash1972]

@RTFirefly

The break-even point for singles seems to be $20,000 in income. (Twice that for childless married couples.) Less than that, your taxes are reduced by somewhere between $0 and $160. More than that, and they increase

So, the new tax cut plan will actually raise taxes for people making more than $20,000???

[silenus]

Looks like it.

Since the Republicans seem to want to drag us all back to the 1950s, let’s go all the way and reinstate Eisenhower’s tax rates, which topped out at 54% for corporations and 91% for individuals. That’ll learn 'em!

[Snowboarder_Bo]

@sleestak

post snipped (Note, beaten to the punch by manson1972)

First, define ‘fair’.

That is, as far as I can tell, where the conversation goes off the rails as there are many definitions of ‘fair’.

My personal definition, likely to be very different than yours, is that fair means each person pays an equal amount. Since that isn’t really possible due to folks who have no income and people who have very low incomes the next best version of fair is everyone pays a fixed percentage across the board, regardless of income type. I also suspect that doesn’t meet your definition of ‘fair’.

So, before we go any further we have to define what ‘fair’ means.

I suspect that isn’t possible.

Slee

Going just by this post, you suppose a lot of things that aren’t accurate.

Sure, “fair” is a concept open for debate; isn’t it always that way when tax plans are being discussed?

[Bryan_Ekers]

I’m guessing deficits don’t matter again.

[Ruken]

Thanks for starting the thread. I couldn’t decide which points to bullet. Insert my usual complaint about OPs not linking to a summary rather than the actual document in question (PDF). Although even that is thin on many details.

@Snowboarder_Bo

My first question is: 3 tax brackets? And that’ll be fair? That’ll cover everything and everyone? :dubious:

This was my first question as well. Why is three better than seven better than two/eleventysix/whatever? Tax brackets aren’t complicated, so I don’t see a simplicity argument.

The larger standard deduction makes for a larger effective 0% bracket and eliminates the impact of what deductions they’re leaving in. So I don’t see anyone with low or middle income ending up paying more, but the devil is in the TBD details…

[Ruken]

@Bryan_Ekers

I’m guessing deficits don’t matter again.

The plan is lacking so much detail that much of it probably could be implemented in a revenue-neutral or -positive way, although I doubt he’s going for that.

[Snowboarder_Bo]

@Ruken

Thanks for starting the thread. I couldn’t decide which points to bullet. Insert my usual complaint about OPs not linking to a summary rather than the actual document in question(PDF). Although even that is thin on many details.

Your complaint is noted; my excuse is that I had no idea the document existed online already and I trust the Associated Press to make a reasonably accurate summary. As there is no concrete plan yet, I thought the summary would be fine. Thank you for providing the link to the PDF.

@Ruken

This was my first question as well. Why is three better than seven better than two/eleventysix/whatever? Tax brackets aren’t complicated, so I don’t see a simplicity argument.

I’m glad to know that I’m not the only person that kinda jumped out at.

@Ruken

The larger standard deduction makes for a larger effective 0% bracket and eliminates the impact of what deductions they’re leaving in. So I don’t see anyone with low or middle income ending up paying more, but the devil is in the TBD details…

According to some of the posts already, people with low incomes would be paying more.

[Bone]

@Ruken

This was my first question as well. Why is three better than seven better than two/eleventysix/whatever? Tax brackets aren’t complicated, so I don’t see a simplicity argument.

Three is better than seven in the same way that one is better than three. For those that subscribe to a flat tax, the less brackets the better.

[Ruken]

I missed that they’re dropping the exemption. Yes, that definitely translates to an increase for a large chunk of people who aren’t making all that much.

[Ruken]

@Bone

Three is better than seven in the same way that one is better than three. For those that subscribe to a flat tax, the less brackets the better.

What, precisely, is better? The proposal says it’s “simple”, but I’m assuming you have a real reason. Because if anything is complicated about our current scheme, the brackets aren’t it.

[Bone]

@Ruken

What, precisely, is better? The proposal says it’s “simple”, but I’m assuming you have a real reason. Because if anything is complicated about our current scheme, the brackets aren’t it.

Ideologically, for those that support a flat tax, then less brackets is better as it is closer to a flat tax. The goal would be for everyone to pay the same rate, so less differentiation gets closer to that goal, thus making it better. I don’t think it has anything to do with simplicity - I see that as a meaningless talking point.

[Richard_Parker]

Well, I guess it’s time to incorporate a “pass-through” company for myself.

[Ruken]

@Bone

Ideologically, for those that support a flat tax, then less brackets is better as it is closer to a flat tax. The goal would be for everyone to pay the same rate, so less differentiation gets closer to that goal, thus making it better. I don’t think it has anything to do with simplicity - I see that as a meaningless talking point.

Gotcha. Probably not the place to argue about flatness ideology. But re: complexity, the current scheme certainly has it.

Reductions in complexity I see in the proposal:
No AMT
Vague reduction in “exemptions, deductions and credits for individuals”
No estate tax

The pass-through business scheme seems more complicated that the status quo. Although I think anyone with a pass-through business will be ok with that if it were implemented.

[wolfman]

The loss of deductions for state taxes is a pure screw you to California and NY and any other state with a decent State income tax will increase many peoples taxes a fair amount as well.