The Trump administration released the outline of its tax reform proposal on Thursday; Treasury Department Secretary Steve Mnuchin dubbed the proposal the "biggest" slashing of taxes ever. Tax reform was one of President Donald Trump's 100-day agenda items, so this is setting up to be a key legislative battle for the president.
Here are seven things you need to know about the Trump administration's tax reform proposal.
1. Trump's proposal would reduce the number of tax brackets to three: 10 percent, 25 percent and 35 percent. The tax code currently includes seven brackets, so reducing them to only three would be a way to streamline and simplify the tax code. It's also an across-the-board tax cut, reducing the top rate from nearly 40 percent to 35 percent.
2. The proposal eliminates the estate tax, alternative minimum tax (AMT) and Obamacare surcharge. The estate tax, also known as the death tax, taxes an estate worth over $5.45 million after someone dies. Naturally, this caused The Washington Post's Phillip Bump to sneer that Trump only wants to eliminate tax to benefit his family, but this ignores the fact that the estate tax is immoral: the government shouldn't have the right to confiscate wealth earned by an individual that he or she wants to pass on to their beneficiaries. Milton Friedman articulated this eloquently here:
The AMT was first passed in 1969 in order to ensure that wealthy Americans didn't avoid paying taxes, but because it wasn't adjusted for inflation some middle-class Americans have become ensnared by the tax. The Obamacare surcharge is a 3.8 percent tax on capital gains and dividends, meaning that eliminating the surcharge would increase the incentives for investment.
3. Personal deductions would be stricken from the tax code, with the exception of charitable and mortgage deductions. The most noteworthy deduction that will be taken out is the state and local tax deductions, which would essentially be whacking the leftists in blue states that vote in favor of higher taxes and are, of course, ardently opposed to Trump.
4. The corporate tax rate would be lowered from 35 percent to 15 percent. Ideally, that rate would be zeroed out, but it's a solid step in the right direction since the United States currently has the third-highest marginal corporate tax rate in the world at nearly 40 percent when including state taxes. Only the United Arab Emirates and Puerto Rico impose higher corporate tax rates.
5. The standard deduction would increase twofold. According to Fox Business, Trump's proposal would cause the standard deduction to increase from $6,300 to $12,600 for individuals and married couples filing separately; married couples filing jointly would see an increase from $12,700 to $24,000 in their standard deduction.
6. There would be a one-time repatriation tax of 10 percent. In other words, the administration would be enticing companies who store their profits overseas to funnel that money back into America by offering them a 10 percent tax rate rather than the usual 35 percent rate. Such a move would likely increase buyback shares.
7. The administration is looking to rescind various tax breaks for wealthy individuals. The administration hasn't released the specifics on this yet, but it would likely involve some of these.
What has been released so far is only the outline, so more details are likely to come in the ensuing days. But the administration better get prepared to fight for this proposal, as CNN has already found anonymous GOP aides trashing it and the Democrats are starting to unleash their class warfare rhetoric. Some on the Left are even suggesting that Trump releasing his tax returns gives the Democrats political ammunition against the tax plan because the tax proposal could be slated to benefit solely Trump and his family – a silly proposition since the plan should be evaluated on how it benefits society as a whole.
The tax plan can be passed through Congress by a simple majority in the Senate through the reconciliations process, but that can only happen if the proposal is deemed to be revenue neutral, which can only be determined once the full details of the plan come out, or if it expires once it reaches the 10-year threshold.
If the administration can get the proposal through the reconciliations process, then it should receive conservative support since no tariffs, border taxes or Value-Added Taxes are being included, and there isn't any infrastructure spending as well. Should Trump be able to sign this proposal into law, it could prove to be a major victory for his presidency.
H/T: ABC News