The President-elect’s tax plan:
Donald Trump’s election victory, along with Republican control of both houses of Congress,
means that there will likely be big changes in tax law coming soon. Trump will be inaugurated
on January 20, 2017, and considering the “100-day rule” (i.e., much of what a president
accomplishes is done in the first 100 days), we can expect the tax law changes to be swift. It’s
unknown, at this time, whether those changes will be effective in the 2017 or 2018 tax years,
but it’s likely that the effective dates of any changes will be spread over those two years.
In reviewing Trump’s tax plans, two points should be kept in mind:
● His tax plans are largely broad-brush, with few specifics. The plan is briefly stated on
his website1 and he didn’t fill in many details in his campaign speeches; and
● The House GOP has its own “Better Way” tax reform blueprint.2 While that blueprint
shares some similarities with Trump’s proposals, there are also many differences. There
will likely have to be compromise if a quick consensus cannot be reached.
Basic individual tax changes
Trump’s plan would collapse the current seven tax brackets to three brackets:
Further changes to basic individual taxation are:
● Personal and dependent exemptions are eliminated;
● The head of household filing status is eliminated; and
● The standard deduction is increased to $30,000 for joint filers and $15,000 for single filers.
Tax rate Married filing joint Single
12% Less than $75,000 Less than $37,500
25% $75,000–$225,000 $37,500–$112,500
33% More than $225,000 More than $112,500
These rates correspond somewhat closely to current rates, with the exceptions of
the current 35% and 39.6% rates. For example, the current 25% rate for married filing
joint kicks in at taxable income of $75,300, whereas under the Trump plan it woud
be $75,000. The 33% rate under current law begins at $231,400, versus $225,000
under the Trump plan. However, under current law there’s an in-between rate of 28%
that starts at $151,900.
The increase in the standard deduction means that about 60% of taxpayers
who currently itemize will no longer itemize. This is likely to remain true as long as
mortgage interest rates are low and taxpayers pay relatively little in home mortgage
Also, the increase in the standard deduction will likely mean that most low- to
mid-income taxpayers will have a slightly reduced tax burden. However, with the loss
of head of household filing status and the loss of exemptions, a single parent will likely
pay more, especially if that single parent has more than one dependent child.
Other individual tax changes
Other individual tax changes occurring under the Trump tax plan include:
● Itemized deductions will be capped at $200,000 for joint filers and $100,000 for
● The alternative minimum tax will be eliminated;
● The tax plan specifically eliminates the 3.8% Net Investment Income Tax. However, under
other portions of his platform, Trump intends to repeal the Affordable Care Act (ACA).
This will presumably also eliminate the 0.9% Additional Medicare Tax, the penalty for not
having insurance, the Premium Tax Credit, and other taxes under the ACA; and
● The existing capital gains rate structure (maximum rate of 20%) will be retained “with
new tax brackets.”
Spidell's Federal Taxletter - by Tim Hilger, CPA