President-elect Donald Trump's tax proposals are designed to reduce the tax burden on individuals and stimulate economic growth, though they have sparked debate about their feasibility and impact on federal revenue.
Here’s an insider’s guide to Trump’s tax plan:
1. Individual Tax :
Trump’s tax strategy focuses on extending the provisions of the Tax Cuts and Jobs Act (TCJA) set to expire. This includes:
- Lower Individual Tax Rates:
If Trump gets his way, the tax rates reduced by the 2017 TCJA will stay in place. This means you’ll continue paying less on your income than before the TCJA was passed.
Without action by 2026, tax rates will revert to higher pre-2017 levels, leading to a possible significant tax hike for many.
- Standard Deduction:
The TCJA nearly doubled the standard deduction, simplifying tax filing for many and reducing taxable income.
Without action, the deduction will drop back to its original amount by 2026, potentially pushing more people into itemizing deductions, complicating tax filings and reducing benefits.
Trump’s plan would make this change permanent, keeping the standard deduction high.
- Child Tax Credit:
The current Child Tax Credit (CTC) varies based on income, with a maximum of $2,000 per child. Trump’s proposal would increase it to $5,000 per child.
- State and Local Tax (SALT) Deduction:
Current law caps the SALT deduction at $10,000. Trump’s proposal could eliminate or increase this cap.
- Estate Taxes:
The TCJA doubled the estate tax exemption to $13.51 million in 2024. Transfers of appreciated property at death get a step-up in basis. This exemption is set to expire in 2025, but Trump proposes making it permanent.
- Additional Individual Tax Proposals:
- No federal income tax on tips.
- No income tax on Social Security benefits.
- No tax on overtime.
- A tax credit for caregivers, recognizing the unpaid but invaluable work they do.
2. Corporate Tax
Current Law:
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- Corporate income tax is subject to a flat 21% rate, and the corporate alternative minimum tax (AMT) rate is 15%.
- U.S. multinationals must pay a foreign tax rate of 10.5% on their global intangible low-taxed income (GILTI).
- Foreign-derived intangible income (FDII) enjoys a reduced rate of 13.125%.
- The base-erosion and anti-abuse tax (BEAT) rate is 10%.
- The stock buyback tax rate is 1%.
Trump’s Proposal:
Trump’s plan aims to cut the corporate tax rate to 15% for companies that manufacture in America, saying, “Let’s bring those jobs back home.”
Tariffs: The New Revenue Makers
Trump’s plan includes a blanket tariff on all imports, possibly 10% or 20%, to keep American goods competitive and bring in revenue. Trump proposes a 60% tariff on Chinese goods as part of his tough stance on trade.
Energy Shift:
Trump’s plan also includes undoing green energy tax credits, favoring traditional energy sources instead.
