A Summary of President-Elect Donald Trump’s Tax Plan
President-elect Donald J. Trump is expected to pursue significant changes to existing tax laws for individuals and businesses. These changes include, but are not limited to, lowering and consolidating individual income tax rates, increasing tax breaks for families, repealing the estate and gift tax, and repealing the Affordable Care Act. Moreover, the Republican Party now has control of both the House and Senate, meaning the Trump administration will potentially have an easier time implementing its tax reform proposals. The following is a summary of President-elect Trump's statements on taxes and tax policy that were made during his presidential campaign. The nature and scope of these tax proposals may change once Trump takes office in 2017.
The First 100 Days
Trump has introduced broad legislative measures that he would like to work with Congress to implement within the first 100 days of his administration. The tax-related legislative measures include:
- Middle Class Tax Relief and Simplification Act – This is an economic plan designed to grow the economy 4% per year and create at least 25 million new jobs. It includes massive tax reduction and simplification in combination with trade reform, regulatory relief, and lifting the restrictions on American energy. A middle-class family with two children would get a 35% tax cut. The "business tax rate" will be lowered from 35% to 15%.
- American Energy & Infrastructure Act – Trump proposes to "leverage public—private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years."
- Repeal and Replace the Affordable Care Act ("Obamacare") – Trump proposed during the campaign to completely repeal the Affordable Care Act. His plan is to "replace it with Health Savings Accounts, the ability to purchase health insurance across state lines, and let states manage Medicaid funds." However, since the election Trump has said that he favors continuing non-denial of coverage for pre-existing conditions and continuing coverage for dependent children through age 26.
- Affordable Childcare and Eldercare Act – This proposal would allow individuals to deduct childcare and eldercare from their taxes, incentivize employers to provide on-site childcare services, and create tax-free Dependent Care Savings Accounts for both young and elderly dependents, with matching contributions for low-income families.
- Trump has proposed consolidating the current seven tax brackets, which range from 10% to 39.6%, into just three tax brackets. The three tax brackets would tax ordinary income at 12%, 25%, and 33%.
- Pursuant to Trump's plan, the personal exemption and head of household filing status would be eliminated.
- The standard deduction would increase from $6,300 to $15,000 for single taxpayers and from $12,600 to $30,000 for married couples filing jointly.
- Trump would impose a cap on the amount of itemized deductions that could be claimed: $100,000 for single filers and $200,000 for married couples filing jointly.
- Trump would completely eliminate the individual alternative minimum tax (AMT).
Individual Income Tax Brackets Under the Trump Plan
|Ordinary Income Rate||Capital Gains Rate||Single Filers||Married Joint Filers|
|12%||0%||$0 to $37,500||$0 to $75,000|
|25%||15%||$37,500 to $112,500||$75,000 to $225,000|
- The current rates for long-term capital gains and qualified dividends would remain unchanged. However, Trump has proposed repealing the 3.8% net investment income (NII) tax.
Estate and Gift Tax
- Trump has suggested the repeal of federal estate and gift tax. For 2017, the federal estate and gift tax is triggered at $5,490,000 ($10,980,000 for married individuals).
Childcare Tax Benefits
- During the campaign, Trump proposed creating a new deduction for child and dependent care expenses as well as an increase in the earned income tax credit (EITC) for families that would not otherwise qualify for the deduction.
- Trump would tax carried interest as ordinary income. Carried interest is a share of any profits that general partners of private equity and hedge funds receive as compensation. It is typically taxed at the preferential long-term capital gains tax rate.
Corporation Income Tax
- Trump has proposed reducing the corporate income tax rate from 35% to 15%.
- Trump would eliminate the corporate alternative minimum tax.
Business Tax Incentives
- During the campaign, Trump mentioned that he would increase the annual cap on Section 179 expensing from $500,000 to $1,000,000.
- Trump would increase the annual cap for the business tax credit for on-site childcare.
- Trump indicated that manufacturing firms would be able to immediately deduct all new investments in their business.
- Trump has proposed the elimination of "corporate tax expenditures" except for the research and development (R&D) credit. The term "corporate tax expenditures" is neither defined nor specified in Trump's campaign materials.
- How tax credits such as the Low-Income Housing Tax Credit, the New Markets Tax Credit, or the Historic Rehabilitation Tax Credit will be impacted is unclear at this point as this has not been specifically addressed in any of Trump's tax proposals.
Small Businesses/Pass-Through Entities
- Pursuant to Trump's plan, pass-through entity owners (sole proprietorships, partnerships, and S corporations) could choose to be taxed at a flat rate of 15% on their pass-through income retained within the pass-through entity as opposed to being taxed at regular individual income tax rates.
- The plan appears to create two layers of taxation, an entity-level tax on the pass-through entity when income is retained and a second layer of tax on pass-through entity owners when income is distributed. However, Trump has issued a press release stating that, "small business owners who elect to be taxed at the 15% business tax rate will not face double taxation."
- Throughout his campaign, Trump talked about repealing and replacing the Affordable Care Act entirely. Presumably, this would include repealing the "Cadillac tax" on expensive health insurance plans and the medical device tax as well.
- Trump has proposed to repatriate offshore corporate profits at a one-time tax rate of 10%.
What Does CohnReznick Think?
Until President-elect Trump makes key appointments, we won't be able to fully assess the impact of the administration or any potential new tax legislation. During the coming weeks and months, we expect to learn more about President-Elect Trump's tax plans. We will continue to keep you well-informed of how the election results will affect your business. We will closely monitor any tax law changes coming from the new administration and Congress and provide you with additional details as soon as they become available. As always, we are committed to providing insight and forward thinking solutions to help you navigate any changes.
For more information, please contact your CohnReznick tax professional.