Will President-Elect’s Tax Plan Trump the House?

By Alan Olsen

Much of the 2016 presidential campaign was focused on taxes; with the main focus on whether or not president-elect Donald Trump would make his own personal and business taxes available to the public. On top of that, of course, was the ongoing and more important narrative in regards to changing our nation’s tax code and who would end up with greatest tax breaks. Hillary Clinton had made it clear if elected she planned to raise taxes on the country’s highest earners, while the president- elect vowed to lower taxes for everyone, especially the wealthy. So now that Trump has secured the White House, and both the House and Senate remain in republican control, we should expect to be seeing some major changes in the tax system, including everyone seeing bigger paychecks, right? Well, not so fast.

Different Rates, Same Ideals

Lost amongst all the bickering, political jabbing and campaign promises between the two differing parties, little was ever mentioned about the difference between Trump and the House of Representatives. However, the reality is they don’t see perfectly eye-to-eye. While both Trump and Congress do want tax cuts and will no doubt be making changes as quickly as possible, it remains to be seen what changes will actually take place and how much the different groups of taxpayers will be affected. What is clear, they both have strong ideas and only time will tell who comes out on top. It should be noted, however, that ideologically both the president-elect and Congress are on the same page when it comes to taxes, in that they both want to lower them. This chart below shows where they both stand, including the new tax rates for highest earners:

Wealthiest to Benefit Greatly

As seen here, it’s clear that both Trump and the House want to lower taxes and the nation’s highest net worth individuals would see a huge benefit. Their tax percentage would drop from the current 39.6 percent – or as much as 43.4 percent for those with added investment income – down to 33 percent, which is a significant savings. Businesses would also see a huge benefit under both proposed plans, but even more so under Trump’s plan, with a proposed 15 percent flat rate on business income. That would be good news for anyone who is self-employed as well, because by classifying their income as business income they would be taxed at a flat rate of 15 percent. Additionally, if the Trump tax proposal goes through you will save roughly $99 million in Federal tax on $500 million of income by staying as an S Corporation. If the House tax proposal goes through you will save roughly $31 million in Federal tax on $500 million of income by staying as an S Corporation

Other Changes That Could Be Coming

There are several other significant tax changes to the current tax laws that are being proposed, including limiting the interest expense deduction for businesses, deemed repatriation of foreign income, expensing purchases of fixed assets all within the first year and limiting other business deductions. However, the rate changes depicted above are the changes that are most likely to have the greatest impact on high net worth individuals and corporations.

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