News & Articles
Browse all content by date.
Somewhere in between the news of the mass shooting in Las Vegas, and the Federal Government's relief efforts in Puerto Rico, and the disrespectful NFL players' protest of the National Anthem and the possible nuclear war with North Korea, President Donald J. Trump released details of his tax code reform plans.
Currently, ordinary income, (interest, wages, business income) are taxed at seven possible rates depending on your income level, anywhere from 10% to 39.6%.
Under President Trump's plan, the seven bracket system would be replaced with three rates: 10%, 25%, and a top rate of 35%.
In our current tax code, various other forms of income, such as dividends and gains from the sale of capital assets, such as stock, held longer than one year, is taxed at preferential rates. A few pay 0%, most pay 15%, and those in the top tax bracket of 39.6% for ordinary income pay a rate of 20% on their dividends and capital gains.
Trump would keep those same three preferential rates, but align the rates with his ordinary income brackets; thus, the 0% rate would apply on income up to $37,500/$75,000, the 25% rate would then apply up to $112,500/$225,000, and the 35% bracket would apply on all other income. In addition, the 3.8% net investment income tax, which is part of Obamacare and applies to only the wealthiest 2% of taxpayers, would be repealed.
One other aspect of the current code which is a fly in the ointment for the upwardly-mobile people in this country who enjoy a taste of financial success in their endeavors, the alternative minimum tax, which requires taxpayers to complete a parallel tax computation, compare it to their "regular" tax, and pay the higher of the two, would be eliminated, as would the estate tax, which applies at a 40% rate under current law when a taxpayer dies with an estate valued in excess of $5.4 million.
Everybody stands to benefit from these tax-code changes, not just the most successful folks. 64.5% of taxpayers earning less than $25,000 will get a tax cut, 70.3% of taxpayers earning between $25,000 and $46,800 will get a tax cut, 75.1% of taxpayers earning between $46,800 and $86,100 will get a tax cut, 77.8% of taxpayers earning between $86,100 and $149,400 will get a tax cut, 73.0% of taxpayers earning more than $149,400 will get a tax cut, and finally, 90.1% of taxpayers earning more than $732,800 will get a tax cut.
Another point of note in this proposal is the doubling of the level at which a married couple has to pay any taxes at all. Currently, the lower end of the income-tax spectrum is around $12,000. President Trump's proposal doubles that level to $24,000 for a married couple. This has brought some criticism because it creates millions more "free riders" who don't pay any taxes at all, but it will really help those who work low-wage jobs and who struggle to make ends meet.
There are many benefits to a proposal like this, just in the optimism that it brings to those who strive to better their financial situation. For too long, we have heard from socialists like Bernie Sanders and others, whose mantra is "Punish the successful! A person only needs X amount of money to be happy! The rich need to provide the slackers in society with the same level of comfort and luxury they enjoy, otherwise the world isn't 'fair!'"
Here we are, not even a year after the election of Donald Trump as President, an election that many Americans see as an answer to our prayers, and we might be on the cusp of a massive economy-boosting tax reform that has not been seen since the heady days of the Reagan administration in the 1980's.
What a wonderful time to be alive!