Saturday, July 30, 2016

Trump Positions "Tax Reform"

In my on going series that I meant to finish before the end of the RNC, I am going to take a look at Trump's tax reform plans. This is coming from his "Positions" page on his website. In Trump fashion, he provides alot of vauge assertions with alot of missing details.

What I Like

The Trump plan reduces the number of brackets from 7 to 4. The highest bracket is 25%. Here is how they look:

Income Tax RateLong Term Cap Gains/ Dividends RateSingle FilersMarried FilersHeads of Household
0%0%$0 to $25,000$0 to $50,000$0 to $37,500
10%0%$25,001 to $50,000$50,001 to $100,000$37,501 to $75,000
20%15%$50,001 to $150,000$100,001 to $300,000$75,001 to $225,000
25%20%$150,001 and up$300,001 and up$225,001 and up
Married filers that make under  50k will no longer have a filing requirement, and taxpayers making under 100k will enjoy a 10% rate. This is definitely a tax break for the middle class. Right now the 10% bracket ends at around 70k in taxable income.

The next items is good. Although, I can't imagine how he intends to circumvent social security and Medicare tax, he claims that business income (corporate, partnership, and sole proprietors) will be taxed at 15%.

  1. No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.
For sole-proprietors, who pay income and SE tax with high combined actual tax rates, a change to a flat 15% would be a very helpful change.

The Trump tax proposals also claim to plan an end to the Death tax and AMT.

All of these items are great, and if they are revenue neutral, they should be  very helpful to the economy.

Changes I dislike:

The first problem I see if that he makes a vague claim that some exemptions and deductions will become obsolete with his new tax plan:

With this huge reduction in rates, many of the current exemptions and deductions will become unnecessary or redundant. Those within the 10% bracket will keep all or most of their current deductions. Those within the 20% bracket will keep more than half of their current deductions. Those within the 25% bracket will keep fewer deductions. Charitable giving and mortgage interest deductions will remain unchanged for all taxpayers.
The paragraph is rather vague. He could be discussed eliminating the state income tax deduction or some lesser used miscellaneous deductions, or he could be discussing an elimination of a vast number of deductions that could lead to a virtual flat tax (which I have renounced many times in the past on this blog).

The second problem with the item above is that he is only promising to protect the home mortgage and charitable deduction. I believe charitable giving is the most sacred of all deductions, and so I completely agree with that option. However, the mortgage interest deduction is a special interest gift to the banking industry. It rewards taxpayers who for making purchase and for getting in debt for the remainder of their lives, There are deductions that should be given greater deference like...I don't know... the purchase of health insurance forced on us by our government. This something he claimed would happen as part of his better-than-Obamacare health plan.

.....will now file a one page form saving them time, stress, uncertainty and an average of $110 in preparation costs. Over 31 million households get the same simplification and keep on average nearly $1,000 of their hard-earned money.
Whenever Congress floats the idea of a simplified tax form, or a postcard tax return, you need to be wary. This will turn into a grift by the Treasury to catch the unwary into paying more in income tax than they should. A simplification in tax forms will end up in a un-official income tax hike to you the taxpayer.

The last issue I have with his plan, is that is narrow focuses on corporate tax loopholes and un-utilized tax breaks for the rich. There a lot of other ways that the government can increase revenue. Honestly, one way is simply funding the IRS sufficiently. During the Bush years, the IRS had the funding provide proper enforcement and tax revenues were through the roof. This is simply because the IRS had the man-power to collect the taxes owed.

One Thing Missing

I'm not sure if he should have addressed social security and Medicare tax here. However, an increase in Social Security and Medicare tax is extremely necessary if Social Security is going to be saved or viable for the many millions of Americans now retiring from the baby-boomer era. Whether the rates increase, more items of income are subject to it, or the earned income ceiling is eliminated, Social security tax revenue must rise drastically.


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