Making Taxes Great Again - Trump vs. GOP Proposals
The dust of an inimitable 2016 year seems to have finally settled. The holiday season served as a wonderful escape to the political reality we found ourselves in after Election Day back in November. But as the holiday fantasia comes to an end, reality is sinking back in. 9 days from the time I am writing this, a presidential election will have transpired a new administration and commence the start of a new era.
As President-elect Trump and his cabinet prepare for inauguration day on January 20th, campaign promises and new policy proposals are leaving many of us with questions about what this administration will accomplish. A “Hot-topic” item that has remained high on President-elect Trump’s priority list as President has been the need for tax reform. Both President-elect and Congress House Republicans have proposed plans to resolve the country’s broken tax system. The question is: what are House Republicans and the Trump administration proposing and how willing are they to work together? Below is a summary of the main proposals for a move toward tax reform in 2017.
Where Trump and the GOP align:
- Both agree on consolidating to three tax brackets: 12%, 25%, and 33% (although the GOP is quiet about the thresholds of each bracket).
- Both agree to repeal the 3.8% Medicare surtax.
- Both agree to repeal the Alternative Minimum Tax (AMT).
Where Trump and the GOP diverge:
- Trump’s proposes a 3-tier capital gains tax structure: 0%, 15%, and 20% that correspond directly to the 3 individual income tax brackets.
- The GOP’s proposal would allow individuals to exclude 50% of their investment income or put simpler: tax rates of 6%, 12.5%, and 16.5%.
- Trump proposes a more aggressive Pease limitation: capping itemized deductions at $200,000 (married couples) and $100,000 (individuals) and consolidating the standard deduction and personal exemptions into a single deduction of $30,000 (married couples) and $15,000 (individuals).
- The GOP proposes a standard deduction: $12,000 (individuals), $18,000 (individuals w/ child), $24,000 (married couples).
As of now, it seems that the House GOP’s primary goal is to effectively simplify the current tax law and not to complicate it. Below are a few policies that only Trump has proposed:
- Above-the-line deduction: income deduction for a significant portion of child care expenses. The deduction would phase out above $250,000 (individuals) or $500,000 (married couples).
- An “elder care” expense deduction for a dependent parent living at home of up to $5,000/year.
- A Dependent Care Savings Account (DCSA): tax-deductible contributions up to $2,000/year and tax-free growth.
In conclusion, both President-elect and House Republicans seem to have slightly different goals pertaining to overhauling the nation’s current tax system. Trump’s ambitious tax proposals seem too complex for a conservative republican GOP whose main objective is to drastically simplify the tax system in 2017. At this point, it isn’t clear how far one or the other is willing to “meet-in-the-middle” per-se, on tax reform. What is clear is that some compromise will be necessary.