posted on May 17th 2017 in Fort Worth CFP Team Posts with 0 Comments /

The questions about Trump’s tax plan are already coming in. Here’s a quick rundown of what you need to know.

  1. It’s not actually a plan at all — more like a very big picture wish list. It’s a couple of headlines and an order to look into making it happen. Any discussion at this point, including my own, is pure speculation on Trump getting what he wants.
  2. It would simplify the tax code. There would be fewer tax brackets and the estate tax and alternative minimum tax would be eliminated. Further, many itemized deductions, such as those for state and local tax payments, would be discontinued. That would hurt high income earners in places with local taxes, especially those in high-tax states. About 40% of the billionaires in the country live in just two states with notoriously high taxes: California and New York. It probably wouldn’t have a big impact on the average earner. The deductions average people love the most — such as for retirement savings, mortgage interest and charitable contributions — wouldn’t go anywhere.
  3. Working people could get a break. The standard deduction would be doubled to $24,000.
  4. Multinational corporations could get a break. They would not have to pay taxes on foreign profits and may receive a one-time break on taxes to encourage them to bring money being held overseas back to the states.
  5. Investment, the catalyst for growth, would get a boost through setting the capital gains rate back to 20% and eliminating the disincentivizing 3.8% tax on investment income imposed by the Affordable Care Act.
  6. “Pass-through” businesses could see a major tax cut. We’ll all hear the very real fact about how that helps hedge funds (a typical whipping boy for the media), but a large majority of all businesses in the U.S. are pass-throughs. That means very small businesses, which create the majority of jobs. Some downstream effects of this favorable treatment may be that it encourages employees to form their own entities and then bill for services, or for firms to recharacterize wage income to business income to get the lower rate. Basically, it appears entrepreneurial workers of all classes stand to benefit.
  7. The plan needs to affect economic growth dramatically, or else the federal deficit will expand.

In summary, a lot of unknowns remain and a lot of negotiations stand in the way of all this. Our team of Certified Financial Planner™ (CFP® professionals) will continue to stay on top of developments as they happen, but let’s not count our chickens before we even have eggs.

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