I have been asked several times recently what I think about the President’s tax reform proposal. There wasn’t a lot of meat in the one page proposal that was released (you can view it here, in all of its glory): 2017 Tax Reform
Here are some of my quick thoughts….
Simplifying is good – Corporate tax rates would drop from a top rate of 35% to a single, flat rate of 15%, regardless of the amount of taxable income. Simplified, yes. Would this cause a lot of controversy? You betcha!
On the personal tax side, the proposal reduces the number of tax brackets from seven to three, and lowers the top tax rate from 39.6% down to 35%. There is a mention of doubling the standard deduction from 6K to 12K for individuals and from 12K to 24K for a married couple. With a higher standard deduction, itemized deductions would be the less attractive alternative since it is more work and many people may not have enough deductions, even with mortgage interest, property tax and charitable contributions, to make it worthwhile versus taking the higher standard deduction. Generally speaking, this could be a boon for people who rent and don't currently benefit from itemizing. The doubling of the standard deduction could make home ownership and charitable giving less beneficial from a tax perspective.
In my mind this is a purely academic exercise, since there is no mention of how we could make these tax cuts revenue neutral. Otherwise, all we are doing is adding to the budget deficit. We'll have to wait and see where Congress and the President go with this before we can do much in-depth analysis.
Want some other perspectives? Check out the following links for articles that take a deep (in some cases, a deep, deep, deep) dive into the analysis of the President’s proposal.
Forbes - What President Trump's Tax Proposal Means for the Housing Market and the Value of Your Home
Best,
Nels
Feel free to suggest tax topics you would like to see addressed in this blog! You can email suggestions to me at Nels@GuidanceAccounting.com