Trump Individual Tax Plan Outlined - Biggest Tax Reform Since 1986

[Craigy]

From the press briefing, reportedly a result of input from Trump team and congress:

• 3 brackets: 10%, 25% and 35%


• Elimination of marriage penalty.


• Larger standard deduction - $24,000 for married couple.


• Tax relief for child and dependent care expenses.


• Repeal of AMT.


• Elimination of 3.8% net investment income tax.


• Repeal of Estate Tax.  Immediate elimination of estate tax with no phaseout.


• Elimination of many (all) deductions, but mortgage interest, charitable giving and retirement contributions retained.  Elimination of state & local tax deduction.

The whole briefing is on youtube and other places.  Here is a snippet:  http://www.cnbc.com/2017/04/26/the-white-house-just-outlined-its-tax-plan-heres-whats-in-it.html

Lots of big impact items here.  Who knows what will actually happen with reconciliation etc.  Lots of details to be found out but so far it's impressive.  I'm happy to see the marriage penalty go.    I am anxious to see what the dollar brackets are, but suspect they are similar to what has been talked about before.

 

[StarTrekDoc]

Very interesting indeed:

http://www.msn.com/en-us/news/politics/tax-plan-cuts-top-rate-from-396-to-35-percent/ar-BBAnVVd   -- specifically calls out provisions to exempt professional partnerships.

--No CA/NY votes on this version -- 9%+ loss on deductions alone --but that's not republican senator votes anyways, and that's where the risk lies on the reform.

No AMT!

A lot of good red meat for middle America too:  AMT, higher overall deductions.  --something for everyone to love except the budget hawks.   ---if this doesn't pick up any Democrat senators, it's going to be a really hard fight to get through reconciliation.

 

 

[Craigy]

No more AMT would be huge for a lot of people.  AMT is one of the things I see people get the angriest about, when they play by the rules, take deductions that they are allowed, etc. but still get hit with extra tax.

The state income tax deduction was surprising.  During the press conference it was specifically asked whether or not that would be eliminated and both of them adamantly replied "YES" which was strange given how their typical response to other questions was "we are in discussions and analyzing the data, blah blah blah."   :lol:  You are right, very few republican senator votes, let alone Trump voters in the states most affected:  California, Oregon, Minnesota, New Jersey, New York, Vermont, DC, Hawaii.

That alone could make up for a huge portion of cost of this tax reduction.  For physicians that could easily cost an extra $10k/year in federal tax or more.  I'm a little upset about that given that I'm in a 6% state but life goes on.

[jz]

Property tax itemization/deduction artificially inflates the cost of housing.   I'm pleased to see this eliminated.  I'd love to see mortgage interest eliminated too.

I strongly agree with elimination of marriage penalties.  This destroys family stability esp at the low brackets. Women would rather be married to BigGov than to a human man.

[Doc29]

Unclear if retirement contributions retained. It seems like there's different versions of course this is very early. Also unclear if Solo 401 K or back door Roth's will be allowed?

Seems like that will be a lot of winners and losers.

[Craigy]

Doc29 wrote:

Unclear if retirement contributions retained. It seems like there’s different versions of course this is very early. Also unclear if Solo 401 K or back door Roth’s will be allowed?

Seems like that will be a lot of winners and losers.

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In the press conference Gary Cohn specifically mentioned that mortgage interest, charitable contributions and retirement contributions would remain as deductions.  However later they said something to the effect of all deductions going away except mortgage interest and charitable contributions so there is some ambiguity, particularly coupled with some of the recent reports of retirement contributions being on the table.

Tax advantaged retirement accounts have long been a very popular item, and personal responsibility and responsible saving has been a big conservative platform forever so I have a hard time believing that it would get chopped.  But again who knows.

[Doc29]

I noticed that as well! Question will be who miss -spoke. Other question I have is when assuming this gets passed in August early September, when (if at all retirement is axed) would go into affect. Some have suggested this would be in effect for the 2017 filing year, I can't imagine it taking effect in 2017 since people are making contributions to tax advantage accounts now. In a worst case scenario guess they could force a distribution which would offset any tax advantage for this year. That seems what my financial advisor was hinting at but I can't believe it.

[jhwkr542]

I can't imagine much of this goes into effect.  It's such a massive reduction in taxes that I don't see how any Democrat or conservative Republican votes for it.

[Complete_newbie]

mmmm very niiice

[StarTrekDoc]

All this is non-starter for Budget hawks, so unless Trump can convince some Democrats in supporting this on the Senate side, some really Voodoo Reagan economics needed to offset the costs.   Then they'll make some stupid sunset on the taxes to make it all work out and stick it to the next generation in 10 years to fix if so.

It'll be interesting to see how much legs this has or will die a Trump-care death without a vote.

[Craigy]

StarTrekDoc wrote:

All this is non-starter for Budget hawks, so unless Trump can convince some Democrats in supporting this on the Senate side, some really Voodoo Reagan economics needed to offset the costs.   Then they’ll make some stupid sunset on the taxes to make it all work out and stick it to the next generation in 10 years to fix if so.

It’ll be interesting to see how much legs this has or will die a Trump-care death without a vote.

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The actual tax cuts aren't quite as dramatic as they initially seem.  Of course this depends on the actual dollar brackets and whatnot.  I recall looking at his proposal during the campaign and thinking that even though there were some bracket changes, the amount of tax owed for someone with a high income would be pretty similar, it's just divided into fewer brackets.  Lowering the top bracket and getting rid of the 3.8% NII tax will cost a lot, but once you eliminate swaths of deductions, particularly the state income tax deduction, some people could very well end up paying more in tax under this plan than they do now.

Other items like the estate tax are incredibly small portions of revenue.  Getting rid of the step-up in basis at death could easily make up for this.

Also, eliminating AMT might not be as generous as it sounds since presumably many deductions will be going away which might have caused an individual to fall into the AMT trap to begin with.

Even getting rid of the marriage penalty might not cost much, if anything.  Under the campaign proposal it wasn't so much a boon for married couples as it was making the single bracket a little worse comparatively so that they lined up.

I don't think this proposal will pass as-is but I think very much of it will make it through.

[PhysicianOnFIRE]

Craigy wrote:

Also, eliminating AMT might not be as generous as it sounds since presumably many deductions will be going away which might have caused an individual to fall into the AMT trap to begin with.

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I fell into AMT because the state income tax deduction made my standard tax calculation lower than the AMT. Eliminating both, and it may be a wash. The 3.8% going away will help, though.

[Antares]

I haven't seen any indication of which income levels fall into which of the three proposed tax brackets. My initial feeling is dread that the mortgage interest deduction and the state income tax deduction would go away. State alone is 8% here. And not allowing the retirement contribution deduction ($106,000 for me this year as a MFJ two-self-employed physician couple) would be a disaster.

[VagabondMD]

The details are too vague to determine whether or not we will be winners or losers with the tax simplification proposal, as stated. Then, there will be the echoes of unintended consequences (ie. will my property value go down, causing property tax to go down, causing raises in property tax down the road, etc.). Might not a huge change for most ...

Unless we can restructure our S-corps into multiple individual small businesses and pay the business income tax rate of 15%.

[Antares]

Vagabond MD wrote:

The details are too vague to determine whether or not we will be winners or losers with the tax simplification proposal, as stated. Then, there will be the echoes of unintended consequences (ie. will my property value go down, causing property tax to go down, causing raises in property tax down the road, etc.). Might not a huge change for most …

Unless we can restructure our S-corps into multiple individual small businesses and pay the business income tax rate of 15%. ?

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No doubt. I'm just not excited.