Trump tax plan proposes slashing US business tax rate

US businesses will be waiting to see whether newly-elected president Donald Trump goes ahead with the significant changes to the individual and corporate tax codes he outlined when on the campaign trail in the months leading up to the November election, which include slashing the business tax rate to encourage US companies to move profits back onshore

The so-called ‘Trump Plan’ pledged to lower the business tax rate from 35% to 15%, and eliminate the corporate alternative minimum tax. During the campaign he said this rate would be available to all businesses, both small and large, that want to retain the profits within the business.

Under Trump’s scheme, there would be provision for a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%.

Trump also said he would eliminates most corporate tax expenditures except for the research and development credit. Firms engaged in manufacturing in the US would be able to elect to expense capital investment and lose the deductibility of corporate interest expense. An election once made can only be revoked within the first three years of election; if revoked, returns for prior years would need to be amended to show revised status. After three years, election is irrevocable.

As regards individual income tax, Trump indicated his plans included collapsing the current seven tax brackets to three brackets, with a 12% rate for incomes for joint filers under $75,000 (£60,400), rising to 25% for joint filings between $75,000 and $225,000 (£181,300) and 33% for incomes over $225,000. The amounts are halved for single filers.

The Trump Plan was set to retain the existing capital gains rate structure (maximum rate of 20%) with carried interest taxed as ordinary income. The new president has said he will repeal the 3.8% Obamacare tax on investment income will be repealed, as well as the alternative minimum tax.

The proposals include increasing the standard deduction for joint filers to $30,000, from $12,600, and setting the standard deduction for single filers at $15,000. The personal exemptions will be eliminated as will the head-of-household filing status.

The Trump Plan is set to repeal the death tax, but capital gains held until death and valued over $10mn will be subject to tax to exempt small businesses and family farms. To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives will be disallowed.

In an analysis released before the election, Urban-Brookings Tax Policy Center said Trump’s plan would significantly reduce marginal tax rates on individuals and businesses, increase standard deduction amounts to nearly four times current levels, and curtail many tax expenditures.

While Trump’s proposals would cut taxes at all income levels, the research centre said the largest benefits, in dollar and percentage terms, would go to the highest-income households.

The plan would reduce federal revenues by $9.5 trillion over its first decade before accounting for added interest costs or considering macroeconomic feedback effects. The plan would improve incentives to work, save, and invest. However, unless it is accompanied by very large spending cuts, it could increase the national debt by nearly 80% of gross domestic product by 2036, offsetting some or all of the incentive effects of the tax cuts, researchers warned.

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