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Thursday, October 8, 2020

President Trump’s Tax Plan 2.0


We are all mystified by the many unforeseen events happening in 2020, seemingly without an end in sight. However, two things are certain: death and taxes. We are going to concentrate on the latter, specifically President Trump’s plans for changes to the tax code. While certain aspects of his policy are unclear, there is no doubt he intends to reduce reliance on China and increase jobs domestically.

To begin, we should consider some of the tax changes for businesses and individuals under Trump’s previous tax plan, the Tax Cuts and Job Act of 2017 (TCJA). The most significant tax legislation since 1986, the TCJA was passed in December 2017 and is expected to sunset in 2025. It should be noted, if Trump is re-elected, he will likely seek some semblance of permanence for this landmark legislation.


High-Level Summary of the TCJA

  • Corporations:
    • Corporate tax rate adjusted from 35% to 21%.
    • U.S. became a territorial tax system for corporate income tax. Previously U.S. corporations paid the U.S. tax rate for income earned in any country, now each subsidiary pays the tax rate of the country in which it is legally established.
    • Corporate AMT is eliminated.
      • Repatriation of profitable overseas companies is taxed at 8% (one-time) and/or 15.5% for repatriation of cash.
    • Elimination of net operating loss carrybacks.
    • Elimination of domestic production activities deduction.
  • • Individuals:
    • Most individuals’ tax rates reduced until 2025.
    • Standard deduction raised to $24,000 for married couples.
    • Childcare credit increased to $2,000.
    • State and local tax deductions for income tax, property tax, and state tax limited to $10,000.
    • Increased the AMT exemption level, ultimately reducing the number of individuals subject to AMT.
    • Estates exceeding $11.2 million are subject to a 40% tax at time of death.

Trump has not yet provided a specific tax plan for his second term if re-elected. Here’s what we know to date.


High-Level Summary of Second-Term Tax Policy

  • Expansion of Opportunity Zone credits
  • Possibly lower corporate income tax rate to 20%
  • “Made in America” tax credit - amount undetermined
  • Tariffs on companies refusing to move overseas employment to the U.S.
  • 100% expense deductions for pharmaceutical and robotic companies to bring manufacturing jobs back to the U.S.
  • Tax credit for companies bringing back jobs from China
  • Deferral or immobilization of payroll tax
  • Long-term capital gain changes
    • 15% for $40,000 to $441,450 in taxable income
    • 20% for $441,451+ in taxable income
  • Reduction of taxes to middle class - expected to be a 10% reduction
  • “Explore America” credit - $8000 for married couples, $500 for each child 16 years or younger for domestic travel within the U.S.

The president has not spent much time formalizing the next iteration of his tax policy for his second term, and thus, much of it remains unknown. Again, it is clear that Trump intends to do whatever he can to end reliance on China and bring back domestic jobs. Examining the TCJA and its penalizing of American companies overseas, it would seem he intends to continue this trend by giving credits to businesses in the U.S., such as “Made in America” credits and 100% expense deductions for manufacturing companies.

Perhaps we will gain some additional clarity on Trump’s tax policy in the final weeks before the election. One thing is for sure — the road to the White House is going to be tumultuous.

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