Here is a bit of a thumbnails sketch of what you can expect under a Trump Presidency.
Ordinary income. The campaign called for top rates reduced to 33% (higher income) and going from 7 to 3 brackets and relief for middle class families. That should be doable. Also eliminate the 0.9% tax from the Affordable Care Act (ACA).
Capital Gains – 20% and eliminate 3.8 percent surtax from ACA. Yes, that will happen.
Dividends – 20%. Yes, that will happen.
Alternative Minimum Tax (AMT). Eliminate. Hmmm. Probably. But see cap on deductions below – will that effectively address what AMT ineffectively addressed? (i.e. some wealthy people paying very little to nothing in federal income tax . . . we will see).
Deductions – increasing the standard deductions for filers – but at the same time having a cap on overall deductions – example – capping itemized deductions at $200,000 for Married Joint filers and $100,000 for single filers. So Washington giveth and Washington taketh. The capping on deductions is a major factor in controlling the costs of reducing the rates, getting rid of AMT, etc. The thresholds for capping deductions; what is covered in the cap; etc. are fairly fluid at this point – and will be driven by the overall dollars allocated for tax reform. However, what is clear is that Republicans are comfortable with a tradeoff of fewer deductions/credits in exchange for lower rates.
Estate tax/death tax. The campaign proposed repealing the death tax but with capital gains over $10 million subject to tax. Also, the campaign put forward an intriguing anti-abuse proposal that barred contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives will be disallowed. I find that the elimination of estate/death tax is a rock that has broken many ships in the past. We will see – I’m skeptical and look for a more doable result – bringing the rate down to where it was previously (35%) or even matching what will be the new top rate for ordinary income (33%).
Family Limited Partnership – proposed Treasury regulations on discounting. Goodbye.
Carried interest – eliminate (ie tax as ordinary income). Everyone’s favorite loophole to talk about. Expect it will finally be on the chopping block – but anticipate only for deals going forward.
Child care/dependent care/child credit – the campaign put forward proposals in this area and Members of Congress on both sides of the aisle (see, example, Senator Rubio (R-FL)) have ideas for expansion in this area. I expect some pro-family changes in these areas of tax law.
Corporate Tax. Rate lowered from 35 to 15 percent. Wow. I think there is too much blood in the water to try to get the corporate rate that low (either from extensive loss of revenue and/or from hairpulling from elimination or reduction of Corporate tax deductions/credits). I see something more in the 25 – 28 percent range as a likely end result – certainly a strong improvement.
International Tax – When three major players in tax agree (Speaker Ryan (R-WI), Democratic Leader Schumer (D-NY) and Senator Portman (R-OH) on a major reform regime (in this case –international tax)– I say it’s beginning to look a lot like Christmas.
Business Tax. One of the most interesting ideas put forward by the campaign (as well as Ways and Means) is the concept of taxing active business owners of pass-through entities (think S Corp., LLC, Partnerships, etc.) at a lower rate than the ordinary income tax rate. Hats off for tax reform that will not just benefit the big companies organized as C Corporations but also the vast majority of businesses in this country – businesses that are organized as pass-throughs. As with the proposal on Corporate tax – I blink at the idea of a 15 percent rate as being a bridge too far – but certainly possible to have the rate be equal to where I think the Corporate tax rate will end up – 25-28 percent. Note: there are other variants of this proposal — for example, where a lower tax rate would only apply to those dollars retained in the business. We will see.
Research and Development (R&D) Tax Credit. A tax credit for business that is widely embraced on a bipartisan basis – and should be expanded as proposed by Chairmen Hatch and Brady. The reality is for the new administration, with a focus on bringing back manufacturing, the R&D tax credit is the tax proposal that is vital in helping American manufacturing and international competitiveness. One idea being considered, expand the R&D tax credit for those businesses that do both their research and a significant amount of their manufacturing here in the U.S.
AFFORDABLE CARE ACT
Some non-tax provisions will be retained – especially the vitally important provision benefitting low income families that requires charitable hospitals to act charitably to the poor (a bipartisan section sponsored by then-Chairman Baucus (D-MT) and Senator Grassley (R-IA)).
However, the provisions of the ACA raising taxes – scythe. Note: these changes could come sooner — in a separate bill — than overall tax reform.
So that’s the best guesses as of now. Things will get clearer fairly quickly – with the new President’s budget coming forward in February and more importantly, the Congressional budget resolution and the framework (and dollars for taxes) for reconciliation. The tax writing committees will have their pencils sharpened and we should have a good idea of the future of taxes by Spring.