A close-up shot of a pair of scissors sitting on top of a US 1040 tax form.

Donald Trump and Potential US Tax Cuts

November 21, 2016

Now that Donald Trump is President-elect, and as Republicans will control both the House and Senate during at least the first two years of Trump’s administration, the prospects for US tax cuts for everyone has never been better.

The items below are based on president-elect Trump’s statements and proposals during the campaign. Actual US tax law changes remain to be seen but here are some of his proposals:

Taxation of Businesses                                                        

  • Corporate Income Tax
    • Lower the maximum corporate tax rate from 35% to 15%.
    • Repeal the corporate alternative minimum tax.
  • Small Businesses
    • Allow individuals who own pass-through entities (partnerships and S corporations) to be taxed at a flat rate of 15% on their pass-through income retained within the business.
  • Business Tax Incentives
    • Increase the cap on Section 179 expenses from $500,000 to $1 million.
    • Increase the annual cap on the business tax credit for on-site childcare to $500,000.
    • Permit manufacturing firms to immediately deduct capital investments instead of deducting interest expense.
  • International
    • Impose a 10% deemed repatriation tax on accumulated profits of foreign subsidiaries of U.S. entities.

Taxation of Individuals

  • Individual Income Tax
    • Collapse the current seven tax brackets for ordinary income into three brackets of 12%, 25% and 33%.  The top tax bracket is currently 39.6%.
    • Increase the standard deduction to $15,000 for single individuals and $30,000 for married couples filing jointly. This is an increase from $6,350 and $12,700 permitted in 2017 under current law.
    • Cap itemized deductions at $100,000 for single filers and $200,000 for married couples filing jointly.
    • Eliminate all personal exemptions.
    • Eliminate the head of household filing status.
  • Capital Gains and Dividends
    • Maintain the current rate structure for capital gains and qualified dividends.
    • Repeal the 3.8% net investment income tax imposed on passive income.
  • Estate and Gift Tax
    • Repeal the federal estate and gift taxes but disallow “stepped-up basis” on assets held at death where the estate is valued at more than $10 million.
  • Alternative Minimum Tax
    • Eliminate the alternative minimum tax (AMT).
  • Childcare Tax Benefits
    • Create a new, above-the-line deduction for child and dependent care expenses.
    • Offer childcare spending rebates equal to 7.65% of remaining eligible child care expenses to lower-income taxpayers through the existing Earning Income Tax Credit.
    • Create a Dependent CARE Savings Accounts that would be matched by a government contribution.
  • Carried Interests
    • Tax carried interests as ordinary income.

Taxes Related to Healthcare

  • Repeal the Affordable Care Act (although his campaign materials only mention repealing the 3.8% net investment income tax).

We will continue to keep you informed as President-elect Trump’s tax plan takes shape.