Trump’s Tax Reform: On the Right Track

The tax reform proposal offered last week by President Trump and Republicans in Congress would be an improvement over the current system, but more so for corporate income taxes than for individual income taxes. It appears that the biggest advantage the proposal offers individual taxpayers is a simplified tax structure, whereas significant cuts are in the works for corporate taxes.
Individual Income Taxes The proposal reduces tax brackets from seven to three: 12%, 25%, and 35%. The degree to which this might represent a tax cut remains to be seen because the proposal does not say at what income levels those brackets would be effective. The standard deduction would almost double, meaning that those at the bottom end of the income distribution would surely enjoy a reduction in income taxes.
The proposal would broaden the tax base by eliminating many deductions and credits. The home mortgage interest deduction and deduction for charitable contributions would be retained, but deductions for payments of state and local taxes are eliminated. This deduction favored taxpayers in high-tax states and effectively provides a subsidy to high-tax states financed by taxpayers in low-tax states.

This post was published at FinancialSense on 10/03/2017.