Donald Trump has unveiled his much vaunted tax plan to change the ways taxes are paid — and it looks like good news for individuals and families across the country.
Trump has outlined the foundations of what he called a “once in a generation” opportunity to alter the tax code, which has stood largely unaltered for several decades. The tax plan is currently moving through Congress, with a final vote expected before Christmas
Key among his proposals was the simplification of tax rates, moving from the present seven tax bands to just three. While he did not specify the income caps for each band, the new individual tax rates are expected to be 12%, 25% and 35%.
American businesses will be pleased to note a 15% cut in corporate income tax, bringing the U.S. in line with more competitive foreign economies. Trump also plans to introduce a new 25% tax band for ‘passthrough businesses’ including partnerships and sole proprietorships, a cut of nearly 15% on the current top rate.
Given that 95% of US businesses fall under the passthrough tax, this should represent a substantial windfall for all businesses. It is particularly good news for large businesses in the U.S., with around 1.7% of passthrough businesses currently generating 40% of corporate tax income.
This move would almost double the standard tax deduction to around $12,000 for individuals, and $25,000 for families, a move designed to benefit poorer citizens in ‘red states’.
Simplifying the tax submission process should also cut down on paperwork, helping to demystify the tax process, and creating substantial efficiency savings for taxpayers and authorities.
Other aspects of the tax plan would include a wider reaching and more substantial child tax credit; a $500 elderly dependents’ credit; and the end of most itemised deductions used to lower tax bills, in favour of the new single deduction.
Trump also plans to move from the current citizenship based tax system to a more common territorial system. This is fantastic news for those currently holding or looking to acquire dual citizenship, as only domestic income will be taxed, rather than global income.
Opponents have claimed that the changes still benefit the top 1% of earners, with the removal of the estate tax in particular reaping rewards for individuals with large estates. But the President has denied this, stating that his plans would not benefit the “wealthy or well-connected”.
The next hurdle for Trump is to formulate the tax plans into a bill, which will then have to pass Congress. The Republicans hold a substantial margin in the House, but are only four seats ahead in the Senate, meaning any Republican dissent could see it falter.
Unlike previous bills which have encountered trouble, however, the tax bill is likely to include several sweeteners for Republicans, including the long sought after estate tax repeal. Democrats meanwhile may be loathe to vote against tax cuts for their constituents.
We’ll endeavour to bring you the latest news on America’s tax system shake-up. More more information on taxation or starting a business in America, don’t hesitate to contact us.
