What the new administration could do for tax law in 2017
The new administration has already begun to shake things up in the nation’s capitol. As of yet, however, the new president has not begun implementing much of his stated tax policy and related fiscal reforms. Precisely how the Trump tax plan will take shape remains to be seen, and is a topic of debate among economists, tax experts and the public.
The tax reform planThe tax reform is outlined in bold terms: The heading of the official document online reads, “Tax reform that will make America great again.” At first glance, much of it seems roughly in line with recurring policy themes of trade protectionism and a desire to bolster a financially struggling middle class. “Too few Americans are working, too many jobs have been shipped overseas, and too many middle class families cannot make ends meet,” the document reads. “This tax plan directly meets these challenges with four simple goals[...]” Those goals, in order, boil down to reducing the tax burden on the middle class, simplifying the tax code, boosting the U.S. economy and achieving all of this without adding to the national debt. The document goes into further detail by explaining more notable visions for tax reform:
- Single taxpayers earning less than $25,000 annually (or $50,000 filing jointly) “will not owe any income tax,” and would receive “a new one page form to send the IRS saying, ‘I win’.”
- Only four personal income tax brackets will be in effect, each a flat percentage of income: 0 percent, 10 percent, 20 percent and 25 percent.
- All taxes on business income will be 15 percent.
- The “death tax,” presumably the current limits on tax-free estate transfers, will be eliminated.
Analysis of the planWhether any specific part of the tax plan could be implemented would depend on a lengthy process of review and debate in Congress. However, several analysts have already made a number of projections about what the plan would look like in practice. According to an analysis published by the Tax Foundation in September 2016, without any significant changes, the plan would substantially reduce income taxes paid while also reducing federal revenue.
- According to the Tax Foundation’s proprietary growth model, the tax proposed tax cuts would reduce federal revenue by at least $4.4 trillion. Accounting for the “larger economy and the broader tax base” leads to a revenue reduction of at least $2.6 trillion.
- Capital expenses would be much lower under the proposed plan, which would likely lead to faster growth in key measures like the gross domestic product and employee wages.
- While U.S. taxpayers as a whole would see after-tax income rise by about 0.8 percent, the tax plan would deliver 10.2 percent more income for the top 1 percent of earners, and potentially up to 16 percent more income for this demographic.