We’re likely looking at months of political posturing and theater before we know what Trump’s proposed tax plan will actually look like when it becomes law.
Nevertheless, here are some of our immediate takeaways on how the plan as it stands now will affect our clients and our business:
Reduce The Corporate Tax Rate – From the current 35% to 20% will allow businesses to keep and reinvest more of what they earn.
No Corporate Bond Interest Deductions – Good for stock market investors, because if companies are no longer able to deduct the interest on bonds that they issue, they will be encouraged to issue additional stock to raise capital.
Reduce Pass-Through Tax Rates – The plan is to lower this rate to 25%, and will benefit not only entities such as real estate partnerships and equity fund operators, but also small mom-and-pop business owners as well.
Top Tax Rate Decrease – For a married couple making over $1 million per year, this represents a tax reduction of $24,000 annually.
No State & Local Tax Deductions – Hurts people in states with high taxes rates such as California. According to the Tax Foundation, Californian’s currently deduct $101 billion in state and local taxes from their federal returns, with New Yorkers coming in second-place at $68 billion.
No Alternative Minimum Tax – Sometimes known as the stealth tax, simply because many people aren’t aware of it. Created in the 1960s, the AMT rate has never been adjusted for inflation. Nearly 33% of people making between $200,000 and $500,000 end up paying the alternative minimum tax.
No Estate Tax – Sometimes called the ‘death tax’, which currently applies to inherited assets of $5.49 million and above.
In summary, our Trump Tax Plan takeaway is that it will boost GDP through increased investment, push the stock market higher than it already is, with interest rates and the cost of capital possibly increasing if GDP and inflation begin to rise and the Fed is forced to raise interest rates quickly.
At first glance this is the most business- and investment-friendly set of proposed tax changes we’ve seen since Ronald Reagan.
Granted, what we end up with after everything is said and done could be watered down, but for now we like what we see.
