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You'll hear that he's "raising taxes," but for most of us, he's lowering them.

Trump's tax plan: Lower rates and a simpler structure, but is it enough?



I've been perusing Donald Trump's proposed changes to the federal tax code, and if you measure the proposal strictly by comparing it with the status quo, it's no contest. Trump's plan wins by several lengths of the galaxy. Of course, that's a pretty low bar. I've been saying since my own campaign four years ago that what we need to do is not reform the tax code but throw it out and start over. Trump's proposal doesn't do that. It's still a progressive code with rates that gradually rise as your income rises. But it does achieve a lot of the simplification that would free people up to stop obsessing over tax strategies and just focus on running their businesses and/or their lives. Here's a summary from Trump's campaign site:
  1. If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households -- over 50% -- from the income tax rolls. They get a new one page form to send the IRS saying, "I win," those who would otherwise owe income taxes will save an average of nearly $1,000 each.
  2. All other Americans will get a simpler tax code with four brackets -- 0%, 10%, 20% and 25% -- instead of the current seven. This new tax code eliminates the marriage penalty and the Alternative Minimum Tax (AMT) while providing the lowest tax rate since before World War II.
  3. No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.
  4. No family will have to pay the death tax. You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.
The Trump Tax Plan Is Revenue Neutral The Trump tax cuts are fully paid for by:

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  1. Reducing or eliminating most deductions and loopholes available to the very rich.
  2. A one-time deemed repatriation of corporate cash held overseas at a significantly discounted 10% tax rate, followed by an end to the deferral of taxes on corporate income earned abroad.
  3. Reducing or eliminating corporate loopholes that cater to special interests, as well as deductions made unnecessary or redundant by the new lower tax rate on corporations and business income. We will also phase in a reasonable cap on the deductibility of business interest expenses.
Here are my initial thoughts: What's good is that it goes from the current confusing array of rates to just four simple rates. It's also good that the capital gains tax rate would be cut from nearly 24 percent to 20 percent. Eliminating the alternative minimum tax is great, because the AMT is one of the most unfair aspects of the tax code. I discovered it back in the early 1990s. It was put in decades ago by some real legislative geniuses to supposedly force those who had used all the available loopholes to arbitrarily assign you a minimum tax. There is nothing fair about that. Trump would also eliminate the death tax, which of course the liberals hate because they think it's awful to let rich people pass all their wealth onto their heirs. But who earned that money? Not the government. So why should they have a claim to it? Besides, the number of people it actually affects is not that high, so the impact is more of a narrative psychological thing than a serious big boost to federal revenue.

The big question is how he will pay for it, which he deals with in the three points listed above. Some have categorized this as raising taxes on the super rich, and that's true to the extent that the eliminate of deductions - especially on carried interest - takes away a tax dodge. But that really only affects a small number of people. You're going to hear that he's raising taxes, but in reality he's lowering them on almost everyone. It would get ugly, of course, if he got the point of negotiating with members of Congress to eliminate all those exemptions and deductions their favored special interest groups have long lobbied to protect. But that's the politics of the plan, not the substance. The substance of the proposal is good. On a scale of 1 to 10, I'd give it a 7 out of 10. If he changed how depreciation - or expensing of equipment - was handled, that would have improved his score. What would make it great, of course, would be to completely throw out the tax code and start over with a new, much more simplified tax code. But this is a step in the right direction, and it's much better than the status quo. The country would be much better off with President Trump and his proposed tax code than we are with President Obama and the one we have now.


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