Now that our 45th President has officially been inaugurated, many of his campaign claims are beginning to take shape, including his tax plan. However, it seems that President Trump’s plan does not align as closely as one might think with the GOP’s plan, which has primarily been outlined by Republican leader Kevin Brady, Chairman of the House Ways and Means Committee. Below is a brief summary of the ways Trump and Brady’s plans differ and what each could mean for taxpayers.
Tax Brackets
Trump and Brady agree in decreasing the number of tax brackets from seven to three, at 12%, 25% and 33% respectively, but they differ in the income ranges for each bracket. Brady’s rates would simply align with the current rates and brackets, meaning taxes would only increase for those who fall under the 10% tax bracket of current law; they would see their rate rise to 12%. Under Trump’s plan, not only would those in the 10% bracket rise to 12%, but some middle classers could see their rate rise to 33%, namely those who make more than $112,500 per year, whereas presently, the 33% rate was not effective until individual income reached $191,651.
Gains/Dividends Rates
Trump would seek to keep the current capital gains and dividend rates, 0%, 15% and 20%, grouping them with his three desired tax brackets. But, aligning the gains and dividends rates would mean both a tax increase as well as an increase from 15% to 20% in gain and dividend rates for many in that middle tax bracket. Brady’s plan varies in that he would apply his tax rates, 12%, 25% and 33%, to gains and dividends rates, while also allowing taxpayers to deduct 50% of their capital gains and dividends and 50% for interest income. Essentially, while certain taxpayers could see an increase in capital gains and dividends rates under Trump’s plan, all taxpayers would see a decrease in their interest/capital gains/dividends rates under Brady’s plan.
Itemized Deductions
While Trump would look to simplify deductions by capping them all at $100,000 if single and $200,000 if married filing jointly, Brady’s would look to eliminate all itemized deductions other than charitable contributions and mortgage interest deductions. Neither plan would be necessarily problematic for lower and middle classes, but some upper classers may take issue with Trump’s deduction caps, and many states and lobbyists may dislike Brady’s elimination of certain deductions altogether.
Standard Deductions/Personal Exemptions
Trump and Brady do agree on increasing the standard deduction, but Brady would increase the deduction from the current $6,300 to $12,000 (if single); Trump would jump up to $15,000. Both plans would also do away with personal exemptions. Taking away personal exemptions could be problematic for families though, which Trump would seek to alleviate by adding child care incentives (although paying for child care in the first place is necessary to get the incentive), while Brady would simply increase the current child tax credit from $1000 to $1,500.
Trump and Brady do align in their desire to lower business tax rates and eliminate estate taxes, but the execution of both differ as well. President Trump has stayed busy signing executive orders in his first weeks in office, but it does not appear that immediate tax reform is among his changes just yet. It does appear, though, that the Trump administration and the GOP need to refine and better align their respective proposals before presenting a finalized plan for tax reform to the American public.
