Trump Tax Plan for Dummies

An independent analysis done by The Tax Foundation finds that Donald Trump’s tax plan would reduce federal revenues by $11.98 trillion over the next ten years. What this means is the size of government would become smaller which is in fact a conservative principal. It   would also improve incentives to work and invest, which traditionally has increased the gross domestic product (GDP) of our government in the past. Trumps plan increases the Gross Domestic Product of the U.S by 11 percent over the long term.

This increase in GDP would translate into 6.5 percent higher wages and 5.3 million new full-time equivalent jobs. Which I believe will end up being good for the economy and for Americans. After accounting for increased incomes due to this plan, the plan would only reduce tax revenues by $10.14 trillion.[2]

Details of the Trump Tax Plan:

  1. Individual Income Tax Changes will Consolidate the current seven tax brackets into four, with a top marginal income tax rate of 25 percent (Table 1)
  2. Taxes long-term capital gains and qualified dividends at a top marginal rate of 20 percent.
  3. Creates a substantial zero bracket for lower income individuals.
  4. Steepens the curve of the Personal Exemption Phase-out (PEP) and the Pease Limitation on itemized deductions.
  5. Eliminates the Alternative Minimum Tax.
  6. Eliminates the Net Investment Income Tax of 3.8 percent, which was passed as part of the Affordable Care Act.
  7. Taxes carried interest at ordinary income tax rates instead of capital gains and dividends tax rates.
  8. Phases out the tax exemption on life insurance interest.
Trump Tax Plan and its Effect on Americans

Trump Tax Plan and its Effect on Americans

This year marks the 30th anniversary of the Tax Reform Act of 1986. That was also an election year, and Congress and the president did what was thought to be impossible. They worked in a bipartisan manner to defy the armies of special interest groups and lobbyists in Washington and enacted sweeping tax reforms.
2016 is also obviously an election year and tax policy is, again, a big issue. But unlike 1986, tax reform is getting mentioned more on the campaign trail than on Capitol Hill. Almost every single candidate in both parties has introduced policies that would alter our tax code. However, the approach that candidates have taken is very different.

For a side-by-side summary of the details and economic effects of each candidate’s tax plan who is still running, see below:

Comparing Candidates Tax Plans and it's Effects on US Economy

Comparing Candidates Tax Plans and it’s Effects on US Economy

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Business Tax Changes of the Trump Tax Plan:

  1. Cuts the corporate income tax rate from the current 35 percent to 15 percent.
  2. Ends the deferral of income from controlled foreign subsidiaries, but preserves the foreign tax credit.
  3. It would also enact, as a transitional revenue raiser, a one-time deemed repatriation tax of 10 percent on all foreign profits currently deferred.
  4. Taxes pass-through businesses at the rate of 15 percent commensurate with the traditional corporations.
  5. Caps the deductibility of interest expenses.
  6. Other Changes of the Trump Tax Plan:
  7. Eliminates the Estate Tax.

Economic Impact of the Trump Tax Plan:

  1. According to our Taxes and Growth Model, the increased incentives to work and invest from this tax plan would increase the size of the economy by 11 percent over the long run.
  2. The plan would lead to 6.5 percent higher wages.
  3. And a 29 percent larger capital stock
  4. A larger economy which is mainly the result of the significant reduction in the service price of capital due to the rate reductions for corporations and pass through businesses.
  5. In addition, the reduction of marginal tax rates on individual income would increase incentives to work and result in 5.3 million full-time equivalent jobs.

The bottom-line? No one can conclude that Trumps Tax plan isn’t conservative and no one can say it will be bad for the economy. I mean, I guess they can say it, but it wont be routed in reality. The tax information found in this article comes from the Tax Foundation. The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, they have provided principled research, insightful analysis, and engaged experts. They have informed our leaders with smarter tax policy at the federal, state, and local levels. The Tax Foundation is devoted to educating taxpayers, the media, and policymakers. Their federal research and outreach highlight the American tax code’s strengths and weaknesses and show how tax policy impacts taxpayers, the government, and the economy at large. At the state level, they use research to foster competition between the states and advise policymakers on how to improve their tax systems.

Posted in Contributors.

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