2016 Post-Election Tax Update
Any change in Presidential Administration brings the possibility, indeed the likelihood, of tax law changes and the election of Donald Trump as the 45th President of the United States is no exception. During the campaign, President-elect Trump outlined a number of tax proposals for individuals and businesses. This letter highlights some of the President-elect’s tax proposals. Keep in mind that a candidate’s proposals can, and often do, change over the course of a campaign and also after taking office. This letter is based on general tax proposals made by the President-elect during the campaign and is intended to give a broad-brush snapshot of those proposals.
At the same time, the end of the year may bring some tax law changes before President Obama leaves office. This letter also highlights some of those possible changes with an eye on how late tax legislation could impact your year-end tax planning.
Campaign proposals
During the campaign, President-elect Trump called for reducing the number of individual income tax rates, lowering the individual income tax rates for most taxpayers, lowering the corporate tax rate, creating new tax incentives, and repealing the Affordable Care Act (ACA) (including presumably the ACA’s tax-related provisions). The President-elect, in his campaign materials, highlighted several goals of tax reform:
- —Tax relief for middle class Americans
- —Simplify the Tax Code
- —Grow the American economy
- —Do not add to the debt or deficit
President-elect Trump also identified during the campaign a number of tax-related proposals that he intends to pursue during his first 100 days in office:
- —The Middle Class Tax Relief and Simplification Act: According to Trump, the legislation would provide middle class families with two children a 35 percent tax cut and lower the “business tax rate” from 35 percent to 15 percent.
- —Affordable Childcare and Eldercare Act: A proposal described by Trump during the campaign that would allow individuals to deduct childcare and elder care from their taxes, incentivize employers to provide on-site childcare and create tax-free savings accounts for children and elderly dependents.
- —Repeal and Replace Obamacare Act: A proposal made by Trump during the campaign to fully repeal the ACA.
- —American Energy & Infrastructure Act: A proposal described by Trump during the campaign that “leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.”
Individual income taxes
The last change to the individual income tax rates was in the American Taxpayer Relief Act of 2012 (ATRA), which raised the top individual income tax rate. Under ATRA, the current individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent. During the campaign, President-elect Trump proposed a new rate structure of 12, 25 and 33 percent:
- —Current rates of 10 percent and 15 percent = 12 percent under new rate structure.
- —Current rates of 25 percent and 28 percent = 25 percent under new rate structure.
- —Current rates of 33 percent, 35 percent and 39.6 percent = 33 percent under new rate structure.
This rate structure mirrors one proposed by House Republicans earlier this year. During the campaign, President-elect Trump did not detail the precise income levels within which each bracket percentage would fall, instead generally estimating for joint returns a 12-percent rate on income up to $75,000; a 25-percent rate for income between $75,000 and $225,000; and 33 percent on income more than $225,000 (brackets for single filers will be half those dollar amounts) and “low-income Americans” would have a 0-percent rate. As further details emerge, our office will keep you posted.
Closely-related to the individual income tax rates are the capital gains and dividend tax rates. The current capital gains rate structure, imposed based upon income tax brackets, would presumably be re-aligned to fit within President-elect Trump’s proposed percent income tax bracket levels.