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Trump's minions are out lying about his tax plan. So here's one that would do much of what he's claiming.

First, double standard deduction. That can simplify a lot of people's taxes. As for other deductions, we can discuss, but they were put in place because standard deductions don't always accurately reflect someone's available income. State and Local tax deduction stays - no one should be required to pay a tax on a tax.

Corporate Tax Rates - Right now federate corporate tax rates vary from 15% to 35%. I'm very much open to changing the income levels where the the various rates hit (if you're earning less than 100,000 in a business, 15% is very reasonable). But cutting them all to 20% is unreasonable, and excessive. Politics being the art of the possible, I'd be willing to cut it to 32%/33%, something in that range.

Non-corporate business taxes, also known as "pass-through" rates. Trump actually has a bit of a point, that small businesses often use pass-through rates and that they can be a real impediment to doing business. But, not all pass-through businesses are small. So, have a special tax table for pass-through businesses. Simple solution: same tax table as Corporate tax Rates.

Alternate Minimum Tax - it says, though I wouldn't be opposed to tweaking the income levels and rates.

Capital Gains: Long Term gains will be defined as capital goods purchased more than 5 years ago - this will be phased in (2 years in 2018, 3 in 2019, etc). Long term rate remains at 15%. Short term gains are treated as normal income.

Personal Tax Rates: (This is changed from the first publication). All current tax rates are cut by 20% (rounding up to a tenth of a percentage point). So the 35% tax rate goes to 28%, current top rate of of 39.6% becomes 31.7%.  BUT...

(Note: for those not aware, this means 50% of income AFTER the first $600,000, 70% of income AFTER the first million, etc.)

Also, three huge new tax deductions.

  1. Money invested in a new business in a way that they cannot take it back is fully deductable INCLUDING from AMT calculations. If you pay a year's rent for a building, purchase equipment, etc. - both a personal deduction AND a company deduction.
  2. For the first ten years of a new company doing regular business, the tax is prorated: 0% first year, 10% second, 20% third, etc.
  3. Major expansions/new divisions can apply for the same discounted tax of that portion of the business as above for new businesses. 

(Those will require technical skill in writing to be sure that it cannot be abused by creating a "new business" that is actually an old business)

Estate Tax: Covered elsewhere. Converts tax on estate into income for recipients, capital goods are acquired with a basis of 0. Taxes paid when sold, but nothing need be sold to pay taxes.

Great deal of negotiation to be done, and neither side is getting everything they want. But this would be a rational bit of tax reform without throwing money at the rich.

Posted on October 1, 2017, 10:48 am
Last updated on October 8, 2017, 4:12 pm

Donald Brown

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