As I wrote in a previous article, President Trump has promised a tax reform plan that includes serious tax cuts for big and small businesses and higher standard deductions for individuals and families.
Trump’s proposal, which was unveiled on Wednesday, simplifies the tax code by shrinking the number of tax brackets from seven to three, with the new brackets paying 10%, 25%, and 35%. This change would ease the tax burden on most Americans – but Wednesday’s briefing did not include income ranges for the brackets.
The plan slashes the top tax rate for corporations and for small business owners to 15%. Corporations would not be required to pay any taxes on profits made overseas, a detail that seems unusual considering Trump’s attack on foreign production.
Brian Hart, who owns a public relations firm in Philadelphia, says he would use the extra money to invest in his business, not to hire employees. “[Tax breaks] could ease the burden on the companies we work with so they could hire a company like ours,” he added. Keep in mind that business who already fall into lower tax brackets might not benefit from the proposal at all.
Plus, there are so many ways to use extra money without hiring more staff:
• Expansion and equipment
• Increasing employees’ salary
• Paying off company debt
• Saving for children’s college education
“I honestly don’t think we would do anything different in terms of hiring,” admits Dan Golden, owner of Be Found Online, adding that he would use potential savings to increase staff bonuses.
In terms of individuals, Trump’s plan stands to benefit families with child care expenses (specific details were not announced when the plan was discussed on Wednesday). Standard deductions would increase, but the plan would remove all personal tax benefits except charitable giving, retirement savings, and mortgagee interest.
• No more estate tax
• No more alternative-minimum tax
• $24,000 standard deduction for married couples filing together
• $12,600 standard deduction for married couples filing separately
The proposal also trims deductions common among wealthy Americans, including deductions for state and local tax payments.
The Trump Administration says that large tax breaks will encourage businesses to hire more people. This will create more jobs, with employees receiving more tax breaks as well. This combination (along with new trade relegations) is designed to boost the economy without adding to the national debt.
“This will pay for itself with growth and with reduction of different deductions and closing loopholes,” said Treasury Sec. Steven Mnuchin. “The economic plan under Trump will grow the economy and will create massive amounts of revenues, trillions of dollars in additional revenues.”
Republicans seem confident in Trump’s proposal. “We have a once-in-a-generation opportunity to do something really big,” said Gary Cohn, director of Trump’s National Economic Council. “President Trump has made tax reform a priority, and we have a Republican Congress that wants to get it done.”
Democrats argue that the math simply doesn’t add up. New York Senator Chuck Schumer says the plan will “explode the deficit” while allowing “the very rich to use pass-throughs to reduce their rates to 15% while average Americans are paying much more.”
Democrats are particularly concerned with Trump’s idea to include pass-through entities, who currently pay individual tax rates, in the proposed 15% corporate rate.
“This is an unprincipled tax plan that will result in cuts for the 1%, conflicts for the president, crippling debt for America, and crumbs for the working people,” argues Oregon Senator Ron Wyden. “Instead of providing a real tax reform plan as promised, this administration is offering cakes to the fortunate few.”
Molly Day, a spokeswoman for the National Small Business Association, supports the plan but worries what will happen when the proposal reaches Congress. “Look what happened with the health care bill. I don’t know that there’s going to be a lot of optimism that this is going to get done.”
Editor’s note: This tax cut is exactly what Trump promised, these are substantial cuts especially to lower and middle classes.