Donald Trump’s long-awaited tax plan would end income taxes for Americans at the bottom of the earnings ladder, hit Wall Street in the wallet and scrap some popular tax breaks.
The four-page plan offered no overall cost estimate, nor estimates for how much it would cut or raise debt and deficits. It wasn’t paired with a plan to cut spending, nor did it specify deductions to be scrapped.
Here’s a look at several main aspects of Trump’s plan, along with comments from Columbia accountant Stephen Kirkland about how South Carolinians might be impacted.
Eliminate income taxes for lower-income workers
Trump’s plan: A single earner with an annual income under $25,000 or a married couple filing jointly and earning under $50,000 would pay no income tax. Some 75 million households would be removed from tax rolls and would get a one-page tax form to send the IRS.
The plan would save about $1,000 for single filers earning up to $25,000. For married couples, it’s more complex. Trump’s plan would create savings for those without children and with joint income of up to $50,000. If they have children, they already pay little tax on up to $50,000 of income because of credits and exemptions.
Kirkland’s analysis: For South Carolina, this proposal would affect about half the households in the state – a fairly significant number of people. To some extent it would spark the economy because any time people have more money to spend, it’s going to be at least a small boost to the economy. Because many people in this income category have a good bit of consumer debt, the extra money could be used to pay down some of that debt, which would be good for them.
Reduce highest income tax bracket
Trump’s plan: Lower the highest income tax rate from 39.6 percent to 25 percent.
Kirkland: This proposal would only affect a small number of people in South Carolina because, based on the 2015 rates, only married couples whose taxable – not gross – income is more than $465,000 (pay the highest rate). So that is a small number of people in South Carolina and across the nation.
Tax deductions, exemptions
Trump’s plan: Some tax exemptions and deductions would be reduced or eliminated. The plan calls for eliminating the alternative minimum tax, the so-called marriage penalty, the estate tax and the carried interest deduction while keeping the mortgage interest deduction.
Kirkland’s analysis: The devil is in the details on this one. Deductions such as charitable contributions are very important – charities depend on them. However, eliminating the alternative minimum tax would be a wonderful thing. The tax affects a lot of people, many of whom are in middle income categories. Because the U.S. tax code is so complicated, the alternative minimum tax creates a lot of additional paperwork for tax return preparers, who would like the tax eliminated and other ways found to replace the revenue generated. In terms of simplification and fairness, this is Trump’s single greatest tax proposal.
Eliminating the marriage penalty would be a good thing, though it is not a huge item. Married couples do typically pay higher federal income tax than they would if they were single. South Carolina has eliminated the marriage penalty for state income purposes. On the federal level, it, too, would be another step toward fairness.
Eliminating the estate tax would be somewhat disruptive because many people are employed in the insurance industry. The legal professions would also be affected. It would be a revenue loss to the U.S. Treasury because there are very, very wealthy people who, if they leave their wealth to their children, a significant amount of that money goes to the Treasury (Department). While estate taxes only account for a small portion of the revenue going into the U.S. Treasury, that figure is likely to rise because there are so many very wealthy people in the U.S.
Reduce corporate tax rate
Trump’s plan: The corporate tax rate would be cut to 15 percent from the current 35 percent.
Kirkland’s analysis: Only large, generally publicly-traded companies such as SCANA, Sonoco and others would be affected. South Carolina is mostly a state of small businesses, and most small businesses are S-corporations, which do not pay the corporate income tax. Instead, the profit flows through to the owner. This proposal would affect only a few businesses in South Carolina and those would be the very large companies.
Editor’s note: Trump’s plan also would forbid U.S. corporations from deferring taxes on income earned abroad, providing them a one-time tax holiday rate of 10 percent – instead of the current 35 percent – on the more than $2 trillion parked overseas now. Trump would follow a one-time 10 percent holiday tax rate with a broader 15 percent corporate tax rate that had far fewer, albeit not specified, tax breaks and loopholes.
Eliminate “carried interest loophole”
Trump’s plan: Eliminate “carried interest loophole” that allows hedge funds and private equity firms to pay a lower tax rate than most individuals.
Kirkland: This proposal would affect a few people, such as Wall Street investment bankers, but probably not people in South Carolina. However, the proposal would be a big step toward fairness.
From Wire Reports
About Stephen Kirkland
Stephen Kirkland has been a certified public accountant in Columbia for 33 years. He recently sold his accounting practice and now is principal consultant at Atlantic Executive Consulting Group, LLC. He can be reached at (803) 477-5973. His website address is www.ReasonableComp.biz. His e-mail address is Stephen.Kirkland@AECG.biz.