Trump’s new tax plan offers some significant changes to the one he proposed in early September, 2015, and these changes have the potential to noticeably impact American wallets.
The new plan is already facing widespread criticism from the left, who claim that it favors the ultra rich, greatly increases national debt, and does not favor the majority of the American people overall.
Let’s look at what changes were made and how these changes will impact American pocketbooks. (RELATED: Which Candidate Is Better For Your Bottom Line: Trump Or Clinton?)
Major Changes And New Developments
“The Trump campaign has significantly scaled back several of the largest tax cuts that it proposed last September. For instance, the campaign’s original proposal called for a standard deduction of $50,000 for married households and three brackets of 10%, 20%, and 25%. The latest version of the plan calls for a standard deduction of $30,000 for married households and three brackets of 12%, 25%, and 33%,” Scott Greenberg, analyst with the Center for Federal Tax Policy at the Tax Foundation, told The Daily Caller News Foundation.
In addition to these changes, Trump’s new plan features proposals “that would offer tax relief to families with children. For example, the latest version of the Trump plan would offer an above-the-line deduction for the average cost of childcare, as well as a credit of up to $1,200 for childcare expenses,” Greenberg explains to TheDCNF.
The possible bad news for families is that the Trump plan’s credit for childcare expenses “would not apply to expenses for children over 13.” This could have adverse effects on “low-income families with children over 13,” because these families could “see higher taxes as a result of the plan,” Greenberg tells TheDCNF.
Industries Most Affected By The New Plan
“The plan has added a provision that would offer manufacturing companies the choice to deduct the full cost of their capital expenses (‘full expensing’) in exchange for no longer being able to deduct net interest payments,” Greenberg explains to TheDCNF. Elaborating on this point, Greenberg says that some manufacturing companies, likely those with high levels of investment and low debt burdens, “may choose to take advantage of this opportunity to lower their overall tax bill.”
Over the last two years, manufacturing accounted for around 11-12 percent of the U.S. GDP. Giving tax breaks to a sector of the U.S. that produces over ten percent of our annual GDP could have many beneficial effects on growth and employment in the coming future.
Does This Plan Spur More Growth Than The Previous One?
The Tax Foundation’s original estimates of the Trump 2015 tax plan were that the U.S. economy “would have grown long-run GDP by 11.5 percent,” Greenberg tells TheDCNF. The Foundation’s new estimates calculate that the U.S. economy would experience an “increase in long-run GDP by 6.9 percent.”
One factor which Greenberg finds particularly germane to average Americans, concerns possible caps on business “pass through” income, which he estimates could “increase long-run GDP by 8.2 percent.”
The Effect On Pass-Through Businesses And Corporations
There is a great deal of confusion surrounding the corporate tax rate in the U.S. and the percentage of corporations that are actually subject to the tax rate. Furthermore, there is also confusion as to how U.S. businesses (that are not corporations) are taxed.
“Many people are unaware that, in the United States today, only about 6 percent of businesses are subject to the corporate income tax,” Greenberg explains to TheDCNF.
Business taxes in the U.S. are highly nuanced, Greenberg goes on to explain, saying that “the majority of businesses in the U.S. are known as “pass-through businesses” because their income is taxed entirely on the individual income tax returns of their owners; it is “passed through” to owners, without any business-level tax. By contrast, C corporations are subject to two levels of taxes: the corporate income tax, which is levied at the business level when profits are earned, and the individual income tax on dividends, which is levied on the individual level when profits are distributed to shareholders.”
Trump’s new plan would effect corporations by lowering “the corporate income tax rate from 35 percent to 15 percent, while lowering the top tax rate on dividends from 23.8 percent to 20 percent,” Greenberg tells TheDCNF.
As for the effect on pass-through businesses, Greenberg says Trump’s plan would “lower the top individual income tax rate from 39.6 percent to 33 percent,” and would de facto “have the effect of lowering taxes on pass-through business income,” Greenberg explains to TheDCNF.
The feature that is unclear for the majority of U.S. businesses covered in Trump’s tax plan is whether or not the plan includes a “provision that would further lower taxes on pass-through businesses: a 15 percent maximum tax rate on pass-through business income,” Greenberg says. This provision was included in the September, 2015, plan, but it received a great deal of flack from economists and tax experts alike.
Experts felt uneasy about this provision “because it would create a tax system with higher tax rates on wages (33 percent) than on pass-through business profits (15 percent),” Greenberg explains. The new plan has some convoluted language regarding this previous provision making it unclear if it is still included in original form.
The provision matters because estimates indicate that if included, it would mean lowering “the maximum tax rate on pass-through business income,” which would amount to “a $1.5 trillion tax cut over ten years,” Greenberg tells TheDCNF.
Final Thoughts On The Trump Tax Plan
“Households at all income levels are likely to see lower taxes, with high-income households receiving the largest tax cut from the plan,” Greenberg concludes to TheDCNF.
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