The Trump Tax Proposal
Last week Trump outlined his new tax proposal. Here’s an early look at how the proposed changes might affect you.
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The New Trump Tax Proposal came out yesterday.
So although this is, at this point, just a proposal, and nothing has actually been passed yet, I wanted to spend a couple minutes and just share with you some initial thoughts that I have on this and talk a little bit about what this could potentially mean for you and your tax situation, or, if you’re retired, what it could mean for retirees.
At first glance, I’m very excited about this Trump Tax Proposal, and I think this is maybe one of the reasons that the stock market has been performing pretty well since the election. This was a big part of the Trump campaign promises and I think it’s going to be pretty interesting. So what he’s looking to do, essentially, is make some very major tax reforms, and the last time we really had major tax reform was going all the way back to 1986, with the 1986 tax reform bills that passed. What he’s looking to do is simplify the tax system, so he’s looking to essentially go from what we have now, which is seven tax brackets down to three. What he’s talking about is a 10 percent tax bracket, a 25 percent tax bracket, and a 35 percent tax bracket.
I am definitely in favor of simplifying the tax code. I think across the board, this looks like it’s something that should, probably help almost everybody. There probably will be some outliers that may not see a benefit from this, but it’s certainly going to affect, I believe, some of the upper-income earners because he’s actually removing the top tax rate of 39.6 percent, so the top tax rate at this proposal would be 35 percent, a nice reduction there.
He’s also planning to eliminate the 3.8 percent Medicare surtax that applies to investment and interest income that hits those upper-income earners as well. One big positive that I see from this is he’s going to double the standard deduction. And it’s going to be from 6,300 dollars to 12,600 dollars for single filers and he’s going to increase it from 12,600 dollars for married individuals filing a joint return up to 25,200 dollars, so this is something that I think will help a lot of people, especially people in the middle class, and especially people that are going to be retirees, because one of the biggest deductions that we have for most of us is our home interest deductions. A lot of our clients that are in retirement that don’t have a mortgage payment anymore are filing using the standard deduction, so that should be a really nice benefit for those individuals.
He is talking about taking away some tax deductions. We don’t know exactly what he’s thinking about there. What we’re hearing is that he’s probably going to leave the home mortgage deduction alone, which is good, I think, for most people, but what he is looking at doing is potentially eliminating our ability to deduct our state and local taxes off of our federal tax return, and so depending on what state you’re in. If you’re in a state that has a high income tax rate, that could be something that negatively could affect you.
He’s also going to repeal the Alternative Minimum Tax. That is something that we’re very excited about. Again, that’s another simplification of the tax system and the tax returns. He’s going to repeal estate taxes as well. Now, this only really affected individuals that had an estate over five and a half million dollars, but that’s going to be a nice bonus, and then lowering of the corporate tax return from a top rate of 35 percent to a top rate of 15 percent, so I think some really positive things there. We’ll need to wait and see what he’s going to be able to get passed. He should hopefully have some support. I think there will be some people out there, and rightly so, wondering what this tax cut proposal could mean for our budget deficits and the long-term deficits that we’re going to have for our national debt, so I think that’s one of the big concerns.
One of the ideas that he has, and I think we’ll get some of it to some degree, is that lowering these tax rates might encourage more economic growth, and I think that should be the case. That seems to be what typically happens. When you put more money into people’s pockets, they go out and spend that money and that, in turn gets the economy rolling. And we could solve some of those deficit issues a little bit with some of that economic growth activity, but we’ll wait and see what happens.
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