Today, November 9th, 2016, Americans witnessed a close race between businessman Donald J. Trump and Secretary of State Hillary Clinton. Mr. Donald Trump won in the early hours of the morning and now the question remains- how could your taxes be affected by his proposed taxation plan.
According to the Tax Policy Center, over the next 10 years, Trump’s plan would cut taxes by $6.2 trillion, which would remove 15% of projected federal revenue. Under this plan, the enormous tax cuts would be offset with large spending cuts. The national debt would rise, which would result in higher interest rates. In the end, these tax cuts would neutralize their economic benefits. The plan would lead to a federal income increase of $7.2 trillion. Higher-income households would get an average tax cut in 2017 of $214,690 and their after-tax income would rise 13.5%. He would repeal personal exemptions, each worth $4500 per parent and per dependent.
Mr. Trump plans to collapse the current seven tax brackets to three brackets. Here are the details of each bracket:
- Ordinary Income Rate from 12% to 0% – Single Filers from 0$ to $37,500, Married Joint Filers $0 to $75,000
- Ordinary Income Rate from 25% to 15% – Single Filers from $37,500 to $112,500, Married Joint Filers: $75,000 to $225,000
- Ordinary Income Rate from 33% to 20% – Single Filers $112,500+, Married Joint Filers: $225,000+
Mr. Trump’s plan is to make vast changes like lowering marginal tax rates and putting limitations on itemized deductions. He would set a new 15% tax rate for corporations and businesses that report their profits on their tax returns. Trump proposes to eliminate special interest loopholes. He is doing this in an effort to keep jobs in America and creating new opportunities to revitalize the American economy.
American households with small children would benefit from Trump’s childcare exclusion. He wants to reduce the cost of childcare by allowing parents to deduct the cost from their income tax returns, including stay-at-home parents. Grandparents and families who use paid caregivers would benefit from the exclusion limited to 4 children per tax year. The eldercare exclusion would be capped at $5,000 per year. Each year, that cap would be increased at the rate of inflation. He would also repeal the head of household filing status.
The “Death Tax” as Trump has called it, would also be repealed. Capital gains held until death and valued over $10 million would be exempt from taxation, which would help small businesses and family farms. Americans would not be allowed to put their appreciated assets into a private charity.
According to the Penn Wharton Budget Model, Trumps proposed tax plan bring tax cuts to 2.6% of gross domestic products, which almost doubles the tax cuts under former President George W. Bush in 2001 and 2003.
Economic experts state that Donald Trump’s plan would add an exorbitant amount of money to the already heavy debt over the next decade. Mr. Trump’s position is that his decisions would spur economic growth and cover the costs necessary to make the economy what he believes it should be.
President-elect Trump’s victory has caused a financial market plunge and it has been very apparent in the last few hours of the trading session. The plunge of the yen, euro and Mexican peso were significant enough to cause instability among traders and the public. It is predicted that Wall Street might suffer its biggest plunge in recent years. The long-term effect is being compared to the Brexit vote this past June 2016. It is the hope of analysts that like the post-Brexit market, the U.S market will regain momentum quickly and find its balance post-election.
Mr. Trump’s plan will most likely be adjusted once he takes on his elected role. He will first have to come together with both Republican and Democrat leaders in order to go from proposals to actual enactment. As of right now, Mr. Trump’s plan is very speculative in nature and will need much flexibility and agility to come to fruition.