November 3, 2017 | Trump Tax Reform, Will it be Enough?

Under this current tax reform proposal the center piece is the reduction in the corporate tax rate from 35% to 20%. There’s also an increase in exemption for the estate tax to $11.2 million or $22 million for a couple. Above that amount people would pay 40% on their estate although the estate tax would go to zero in 2024. Only a very small number of people and families would benefit from this reduction in the so-called “death tax”.

Other features are fewer tax brackets and a slightly lower tax rate for low and middle-income people. One idea that might get challenged is the cut in the maximum mortgage loan of $1 million to $500,000 to qualify for interest deduction.

A repeal of the “alternative minimum tax” will save people money who have large losses to deduct, as Trump had in his 2005 tax bill.

In an earlier version of tax reform there was a proposal for more radical change that would end taxation worldwide of U.S. multinational corporate profits. The U.S. is the only country that taxes foreign profits. The idea was to replace that worldwide tax with a destination-based cash flow tax or border-adjusted tax. In this proposal there is a one-time tax on repatriation of foreign profits of 12% on cash and 5% on illiquid assets.

The new proposal is not without serious challenges, according to the GOP-friendly paper, The Wall Street Journal: “(some of the proposals) contain huge potential problems.”

The Senate is scheduled to bring out its own version of tax reform next week. Then the Senate and the House of Representatives will try to merge the two plans, and get all of that done in the next 60 days, according to President Trump.

If it’s similar to what happened in the 1980s, there will be substantial changes and revisions before the bill is passed.

The tax proposals are estimated to cost $1.5 trillion over ten years and almost all of that cost comes from lower business taxes, according to government estimates.

The proposed reform package is an attempt to do something, in a couple of months, which took six years of hard work in the 1980s, culminating in The Tax Reform Act of 1986.

Reagan was a popular President, according to his approval ratings:

Source: The American Presidency Project

Trump’s approval rating has never been above 50% and has remained below 40% since June. His ratings at this point are, by far, the worst of any President in modern times.

Source: Gallup.com

So Trump is trying to do something that hasn’t been done since Reagan, with an approval rating much lower than any of his predecessors. And he has Special Counsel Mueller investigating senior members of his campaign team, including former campaign Chair Paul Manafort. The investigation includes charges of tax evasion and money laundering.

President Trump is the only President not to release his tax returns. So he might find it hard to sell his claim that “tax reform will protect low-income and middle-income households, not the wealthy and the well-connected … I’m doing the right thing and it’s not good for me. Believe me.”

It’s possible that many will doubt President Trump’s claim that he’s doing it for the people. And it’s likely that there will be a long approval process, going beyond 2017 and perhaps even beyond the November 2018 election.

Hilliard MacBeth

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Hilliard MacBeth November 3rd, 2017

Posted In: Hilliard's Weekend Notebook

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