Saturday, 20 January, 2018

Claims about Trump's tax plan don't hold up

Melissa Porter | 30 April, 2017, 16:41

"All those moneys will be squeezed even more from a plan like this that again cuts revenues by cutting taxes for people at the top".

These are the people who have been left behind by an increasingly globalized economy.

But the biggest missing detail of all was: How will the White House pay for the tax cut? For married couples, the estate tax only kicks in on inheritance greater than $10.98 million. In return, he wants to double the standard deduction.

Major corporations: The corporate tax rate cut is a huge one.

In addition to a flat 15 per cent business tax rate, the Trump administration proposed territorial tax system to level the playing field for American companies, one-time tax on trillions of dollars held overseas and eliminate tax breaks for special interests. Marr says scrapping the state and local provision would have the biggest impact and would largely hurt Americans in "blue", or Democratic states on the coasts that pay higher state and local tax rates.

The proposal leaves many details undefined and faces a gauntlet of political land mines, but it's a good opening bid by a president who understands that taxes are too high and that the USA economy needs a dramatic jolt.

The president also wants to get rid of the estate tax. Some of the changes could significantly lower the tax bill of Californians.

Trump's new plan is silent on this issue as well. Those living in poverty often pay little or no state income taxes (but do pay a disproportionate amount of income on sales taxes).

Doubling the standard deduction - or at least raising it to $24,000 - could provide significant tax relief to middle-income families.

It also omits much of the work that Ryan and other Republicans have done to craft a comprehensive plan. The top tax rate for ordinary income is 39.6 percent.

For individuals and families, the plan reduces the number of tax brackets (the highest of which is now 39.6 percent) from seven to three, at 10 percent, 25 percent, and 35 percent. The wealthiest Americans would fall into the lower tax bracket.

The Trump administration Wednesday put forth a proposal that it labeled a "massive" tax overhaul, which would give big tax cuts to individuals and corporations and reduce the number of tax brackets and deductions. Without it, he would have owed just $5.5 million.

"We will be attacked from the left and we will be attacked from the right", predicted Gary Cohn, director of the White House national economic council at yesterday's press conference announcing the plan. House Minority Leader Nancy Pelosi, D-California, noted Thursday that the proposal would have lopped more than $30 million off Trump's 2005 income taxes, based on a partial copy of Trump's tax return for that year that was leaked months ago.

AMP chief economist Shane Oliver has also said that if Australia is unable to compete with the United States tax rate, companies may decide to move their head office from Australia to the US.

Repeal the alternative minimum tax: The AMT is an alternative method of calculating federal income tax that runs parallel to the ordinary method. The fact is it affects very few estates. Growth would need to accelerate to 2.8 percent a year, from its current pace of about 2 percent, to pay just for that cut.