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Trump Announces Broad Tax Reform Plans

Earlier this Spring, President Trump announced his broad plans for tax reform and his desire to see these reforms introduced as legislation as quickly as possible. The plan includes six key components:

1. Reduction of tax brackets from seven to three. Currently, the US maintains seven tax brackets ranging from 10% to 39.6%.  The Trump proposes to streamline the brackets into three rates: 10%, 25%, and 35%.

2. Limiting itemized deductions to mortgage interest and charitable contributions and incentivizing standard deductions.

3. Elimination the Alternative Minimum Tax. The elimination of the AMT would impact between 4 and 5 million tax filers and would have a positive impact on high income earners.

4. Elimination the Estate Tax. Currently the estate tax is triggered when estates exceed $5M, which impacts very few taxpayers.

5. Elimination of the Net Investment Income Tax (NIIT). The NIIT is a 3.8% tax on households with a modified adjusted gross income of $200,000 (single or head of household), $250,000 (married filing jointly), or $125,000 (married filing separately), who also have interest, dividends, or rental income. The NIIT took effect in 2013 to fund the Affordable Care Act.

6. Cap Capital gains tax. Currently, the long-term capital gains tax rates range from 0% to 20% for most assets. The new tax proposal resets the top capital gains tax rate to 20%.

As you can imagine Trump’s tax proposal was met with mixed reaction on Capitol Hill; Republicans applauded the plan and Democrats panned it. What everyone can agree upon is that for Congress to approve a significant overhaul to the tax code will require bipartisan support and an overwhelming desire by the American people to see this happen during this presidential term.