How The New 2017 Tax Reform Will Affect You

In summary, based on an analysis prepared by the Tax Policy Center, President Trump’s revised tax plan would cut taxes on every income level.  However, high wage earners will receive the biggest tax cuts, both in terms of dollars, as well as in percentage of income.  According to the analysis, the Trump revised tax plan would reduce the top individual income tax rate to 33 percent, and reduce the corporate rate to 15 percent.

The plan will allow owners of pass-through businesses (such as sole proprietorships, partnerships, and S corporations) to elect to be taxed at a flat rate of 15 percent, rather than under the regular individual income tax rates.  Capital gains and dividends would be taxed under the current preferential rate structure.  Distributions from “large” pass-through businesses received by owners who elected the 15 percent flat rate would be taxed as dividends.

Increasing the standard deduction, adding a new deduction and other tax benefits for child and dependent care are also proposed under Trump’s revised tax plan.  Among other proposed changes, the plan would also put a cap on itemized deductions ($100,000/Single), ($200,000/filing jointly), eliminate the alternative minimum tax (AMT), repeal personal exemptions and the head of household filing status.

The Tax Policy Center’s analysis indicates that increasing the standard deduction would significantly reduce the numbers of filers who itemize.

It is estimated that 27 million (60 percent) of the 45 million filers who would otherwise itemize for tax year 2017, would opt out for the standard deduction.  Accordingly, the elimination of the head of household filing status and personal exemptions, would result in many large families and single parents facing tax increases.

On the international side of things, imposing a tax on the existing unrepatriated earnings of US firms’ foreign subsidiaries, is also proposed under Trump’s revised tax plan.  Earnings held in cash would be taxed at 10 percent and other earnings at 4 percent, with the liability for this one-time tax, payable over a 10-year period.

While President Trump has been busy pushing his tax plan, Speaker of the House, Paul Ryan and other Republicans have been working on a tax plan as well, (the G.O.P. tax plan), which was recently unveiled.  Following are some of the proposed tax changes for both the Trump revised tax plan, and the G.O.P.’s tax plan.

According to John Cassidy, a columnist for The NEW YORKER, the G.O.P.’s tax plan has a fatal flaw, which neither the House, nor the Senate can fix. The flaw is that the tax plan cannot benefit both, businesses and households.  Having to choose, House Republicans went with the businesses.

Note that passing a tax bill with just fifty-one votes in the Senate, rather than sixty votes, the Republicans must keep the over-all cost of their proposal to $1.5 trillion over a ten-year period.  The Joint Committee on Taxation recently released an analysis of the Senate Republicans’ plan, indicating that cutting the corporate tax rate to twenty percent starting in 2019 would cost $1.33 trillion by 2027.  Even if allowing for a one-year delay in implementing the corporate tax cut, the business provisions of the G.O.P.’s tax cut plans absorb the bulk of the $1.5 trillion.

While not much else is certain at this point, if the new tax reform bill passes, the one thing that does seem to be certain is that in one way or another, good or bad, the new tax changes will have a lasting effect on many American taxpayers.

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