A Closer Look at President Trump’s Individual and Business Tax Proposals

In order to help individuals and businesses track some of President Trump’s key proposals, we offer the following summary.

First 100 Days

Last October, Trump released a “Contract with the American Voter,” which contained a series of promised actions the candidate said he would prioritize during his first 100 days in office. Within that declaration were a handful of tax relief measures, including:

  • Middle Class Tax Relief and Simplification Act. In essence, this proposal promises to provide substantial tax cuts to “a middle-class family with two children.” For individuals, it calls for collapsing the number of tax brackets from seven to three and simplifying tax forms.
  • American Energy & Infrastructure Act. To fuel the massive infrastructure renewal and jobs program Trump pitched as a candidate, this act proposes to use “public-private partnerships and private investments through tax incentives” to create a $1 trillion program over a 10-year period.
  • Affordable Childcare and Eldercare Act. In broad strokes, this act would let families take tax deductions on child and elder care services, and create tax-free Dependent Care Savings Accounts that could also include matching contributions for lower-income families. The act also proposes incentives for employers that offer on-site child care services.

Tax Proposals for Individuals and Families

While there is a GOP-majority in Congress, and Trump’s proposals for simplification and lower rates follow traditional conservative conventions, it’s likely that he will still need to negotiate key details with lawmakers on any final changes to tax policies for individuals. That said, here’s a summary of the key individual and family tax proposals:

  • Marginal tax rates. As a candidate, Trump called for three individual tax brackets (12, 25 and 33 percent), though his proposals did not define the income levels for each specific bracket. Nonetheless, that change would be a significant reduction from the current system of seven brackets and a top individual rate of 39.6 percent. Additionally, the president-elect wants to dramatically hike standard deductions to $30,000 for married couples and half that amount for single filers. In exchange, Trump proposed eliminating all personal exemptions and capping itemized deductions at $200,000 for married couples filing jointly and $100,000 for individual filers.
  • Capital gains and dividends. Trump has not proposed any changes to the maximum long-term capital gains rate of 20 percent, other than his desire to repeal a 3.8 percent net investment tax on passive income and have the maximum rate apply only at higher income levels.
  • Estate tax. Both Trump and House Republicans agree on eliminating the federal estate tax, which is currently at 40 percent on estate assets above $10.9 million transferred from a deceased married couple (or $5.45 million on estate assets passed on by a single filer). While they also agree on the elimination of “stepped-up basis” as a tool to shield taxable gains of more than $10 million on estate assets, Trump’s approach may offer exemptions to small business owners and farmers.
  • Alternative Minimum Tax. Both Trump and House Republicans want to abolish the AMT, though policy analysts agree that the potential revenue loss from such a change would be offset by the itemized deduction limits noted above.
  • Childcare tax benefits. In addition to his proposals to create tax-free Dependent Care Savings Accounts and tax deductions on child and elder care services, Trump has also floated the idea of broadening eligibility for the Earned Income Tax Credit. As discussed during his campaign, the latter might include spending rebates to lower-income families for child care expenses.

Tax Proposals for Businesses

As an owner of multiple business ventures, Trump has proposed tax policies for large corporations and smaller enterprises. These include:

  • Corporate tax rates. For C-corp entities, the president-elect would like to cut the top tax rate from 35 to 15 percent and eliminate the corporate alternative minimum tax.
  • Small business taxes. For all S-corp, LLC, sole proprietor and other entities operating on a “pass-through” basis, Trump has proposed a flat 15 percent tax rate on all reinvested business income. This would be a marked change from current pass-through income tax practices, where business and any wage income are combined and taxed at regular marginal rates. It remains unclear how Trump and House Republicans would reconcile potential ripple effects from this move, such as pass-through business owners who opt to shift compensation income taxed at marginal rates to business profits taxed at the 15 percent mark.
  • Specific tax incentives. In addition to support for the existing R&D tax credit, the president-elect also singled out three other business tax incentives he would like to preserve or improve. For example, Trump proposed doubling the cap on Section 179 expensing of qualified asset purchases to $1 million. He also has proposed allowing manufacturers to take immediate deductions on new business investments.
  • Healthcare taxes. Both Trump and House Republicans strongly support a repeal of the Affordable Care Act (ACA), a move that would have ramifications for several current tax components. For instance, the current 3.8 percent net investment income tax used to help fund the ACA would go away if the law were fully repealed, as would a 2.3 percent excise tax on medical device manufacturers.

For complete information on pending tax law changes and planning opportunities, contact Hein’s tax services team.

January 25, 2017