THE DEVIL PROVIDES FEW DETAILS

Donald T Rump’s revealed “revolutionary” tax reform “plan” continues to be nothing more than scribblings on a cocktail napkin.  He just added a few more scribblings in his Wednesday address.

 

The devil is in the details.  But the devil has provided only minimal details for his “plan”.

 

Trump doesn’t care about “details”.  He will leave them to Congress.  He only cares about attention, praise, and the roar of the crowd.

 

Here, from Trump's address, supplemented by the hand-out "United Framework for Fixing Our Broken Tax Code", is the "plan". 

 

(1) The Tax Code will be simplified.

 

If true this is a good thing and something I wholeheartedly support, despite being a professional tax preparer who supposedly benefits from tax complexity.  The current US Tax Code is a convoluted “mucking fess” that needs to be totally rewritten from scratch.

 

(2) Individuals can earn up to $12,000 tax-free, and married couples up to $24,000.

 

These numbers refer to the new Standard Deduction.  There is no mention of the "Head of Household" filing status - I do not oppose doing away with this status.  The plan eliminates the personal exemption, for both taxpayers and all dependents, and the additional Standard Deduction for age and blindness.  I also do not oppose this.  However, considering the elimination of these current deductions this plan does not "roughly double" the Standard Deduction, as it says it does.

 

(3) The current 7 tax rates on “ordinary income”, from 10% to 39.6%, will be reduced to 3 rates – 12%, 25% and 35%.  And there could be a “surtax” on “high income households”.

 

No information is supplied regarding the income ranges of the 3 new rates, or what would be considered “high income”.  I support the idea, but would want to see the specific income ranges.

 

(4) The Child Tax Credit for dependents under age 17, currently $1,000 per qualifying child and phased-out based on level of income, will be “expanded”.

 

No information is supplied regarding exactly how it would be expanded.  The expansion beyond the current $1,000 is to replace the personal exemption for children.  I do not oppose replacing the deduction for personal exemptions for dependents with a credit.  The levels of income used in the phase-out of the credit will be increased, a good thing, although I personally oppose any AGI-based phase out of deductions or credits.  The first $1,000 of the credit remains "refundable".  I strongly oppose all refundable credits.

 

(5) A $500 credit for "non-child" dependents, such as elderly parents, will be created.  

 

As I said above, I do not oppose replacing the personal exemption deduction with a credit. 

 

(6) Itemized deductions that "primarily benefit the wealthiest families" will be eliminated.  

 

The specific itemized deductions have not been identified, although we are told the "tax incentives" for home mortgage interest and charitable contributions will remain.  Will the mortgage interest deduction be limited to "acquisition debt", as I believe it should?  

 

(7) The dreaded Alternative Minimum Tax (AMT) will be repealed.

 

This is definitely a good thing, which I totally support.  In reality the AMT hurts the upper middle class more than it hurts the “wealthy”.  The current AMT was used by the Tax Reform Act of 1986 as a back door way to offset the Act’s basic tax cuts.

 

(8) The federal Estate Tax will be repealed.

 

I do not oppose this as long as the step-up in basis for inherited assets remains intact.  I will say that, despite what Trump suggested, the federal Estate Tax, with its current $5+ Million exemption, does not regularly force those who inherit family run small businesses and farms to sell them off to pay the tax.  As USA Today points out (highlight is mine), “according to the non-partisan Tax Policy Center, only roughly 50 small business and small farm estates nationwide will face any estate tax in 2017, owing on average less than 6% of their value in tax”.

 

(9) The top corporate tax rate will be reduced from 35% to 20%.

 

I have no problem with this.

 

(10) The top tax rate on partnership and sub-S corporation “pass through” business income and,Schedule C self-employment income reported on the Form 1040 would be 25%.

 

This would cause W-2 salary and wage income to be taxed at a higher rate than “self-employment” income, and most definitely disproportionately benefit higher-income taxpayers.

 

(11) Businesses will be able to write-off in full the cost of all equipment purchases.

 

Under Internal Revenue Code Section 179 businesses can currently write-off up to $500,000 of equipment purchases.  Isn’t this enough?

 

Speaking of his tax reform “framework” arrogant serial liar Trump said, “It’s not good for me, believe me.”  First of all, I do not believe a single word that comes out of the mouth of Donald T Rump about anything, especially when he adds “believe me”.  And second, we really can’t tell if it is good for him because he has not released his tax returns.  We don’t know if Trump actually pays any federal income tax at all.

 

The elimination of the federal Estate Tax would certainly substantially benefit the Trump family.  And the lower rate on “pass through” business income would definitely benefit Trump personally, assuming he actually pays income tax.

 

Trump also said of tax reform, “I guess it is probably something I can say I’, very good at.”  Donald T Rump is not very good at anything, except consistently screwing investors, shareholders, contractors, vendors, employees, and customers while lining his pockets.

 

Overall I will admit there is much good in the "framework".  But, like the rest of America, I am eagerly waiting to see the specific details of this tax “plan”.

For my "framework" for tax reform see "A Tax Professional for Tax Reform".

 

TTFN