Paint It, Orange
The Donald isn’t looking to merely color over the existing tax law. He wants to yank out whole parts with his little hands. To be deported from the code are the death tax, the alternative minimum tax and the Obamacare taxes. Yuge!
Trump’s original plan virtually quadruples the present standard deduction to $50,000 for joint filers and $25,000 for singles. Clients earning more would see a phase-out of their itemized deductions other than charitable donations and mortgage interest.
A 25% top ordinary bracket graced the candidate’s original proposal. But he has since adopted the 33% top rate set forth in House Republicans’ June tax-reform road map.
Trump has proposed taxing all business income at 15%, whether from a corporation, partnership, limited liability company or sole proprietorship. Observers say this could make workers want to be classified as independent contractors in order to qualify their earnings as business income taxable at 15%, which is less than they’d owe on wages received as an employee.
Another proposal for businesses is allowing them immediate write-offs of capital investments. “But with a 15% tax rate, deductions would no longer be meaningful for the business owner. There isn’t enough tax savings,” opines Tom Wheelwright, CEO of the accounting firm ProVision Wealth Strategists, in Tempe, Ariz.
In short, Trumpian fiscal policy would demand new approaches to providing tax advice. “There’s no question Trump is upsetting the applecart,” Wheelwright says.
For example, in a world without a federal death tax, “Estate planners would put a greater emphasis on income tax planning. We would be using non-grantor trusts to shift income to lower-bracket family members,” among other techniques, says Las Vegas estate planning attorney Steve Oshins, a partner at Oshins & Associates LLC.
The 10-year cost of Trump’s original plan, which bears the label “fully paid for,” is $10.14 trillion according to the conservative Tax Foundation, and that’s after the think tank factored in the potential economic growth generated by Trump’s proposed tax cuts. The Tax Policy Center pegs the drop in government revenues a little lower at $9.5 trillion. After Trump raised the top marginal rate from 25% to 33%, Larry Kudlow, a Trump economic advisor, estimated it would increase the deficit by only $3 trillion.
Less discussed is the Trump campaign’s estimate that the proposed increase in the standard deduction would boost the number of American households not paying federal income tax.
On paper, the candidates’ tax plans stake out contrasting philosophies. Yet as a practical matter, if the winning candidate doesn’t implement the promises, or can’t, then these proposals are just so much political jabber at best.