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The Potential Impacts of Donald Trumps

Proposed Tax Policies

By Caitlin Larrick

ACTG 377 Federal Income Tax


Honors Option
May 10, 2017
Introduction

Donald Trump, the 45th President of the United States of America, had been in office for 97 days

when he shared his plans for revisions of the Internal Revenue Code with the U.S. public. After

President Trump announced his intent to run for President on July 15, 20151, he quickly began

expressing his views on the flaws he sees in the United States Internal Revenue Code. On

Monday, August 8, 2016, Donald Trump gave a speech in which he outlined what he hopes he

could do for the American economy if he were to become president.2 On April 26, 2017, 97 days

after he took the oath of office, President Trump presented his plans for a massive reform of the

Internal Revenue Code.

The 2017 Tax Reform for Economic Growth and American Jobs was given out before the

White House press briefing on April 26, 2017 and it did not take long for everyone to begin

expressing their opinions on how President Trump planned to carry out the ideas he expressed

during his campaign. Although some changes were made, these proposed reforms reflect most of

the promises President Trump made during his campaign regarding the tax policies and the

revamp of the American economy.

1
Diamond, Jeremy. 2015. Donald Trump is running for president in 2016. June 17. Accessed May 8, 2017.
http://www.cnn.com/2015/06/16/politics/donald-trump-2016-announcement-elections/.

2
2016. Full text: Donald Trump's Detroit speech on his economic plan. August 8. Accessed May 8, 2017. 2.
http://www.politico.com/story/2016/08/full-text-donald-trumps-detroit-speech-on-the-ecnomic-plan-226793.
Campaign Promises

One of the first topics of business Donald Trump addressed after announcing his candidacy for

President was his plans for the revision of the tax laws in the United States. His ultimate mission

was to cut taxes for all American taxpayers, focusing on helping the middle class, simplifying

the Internal Revenue Code, and creating growth in the American economy.3 He focused on

individuals and businesses separately with plans to eliminate many of the taxes paid by both

entities. His major proposed revisions to the individual income tax laws included:

Trading the current seven tax brackets in for a three bracket system with lower rates.

Increasing the standard deductions allowed for taxpayers to deduct on their tax returns.

Reducing the tax rate that capital gains and dividends are taxed at.

Limiting the tax effects of itemized deductions.

Increasing phaseout rates for various exemptions and deductions.

These provisions were aimed to benefit the middle-class family the most, but would have great

impacts on all taxpayers. Reducing the tax brackets and the rates associated with each bracket

would allow more Americans to have more discretionary money. Ideally, they would save and

invest this money they will be saving from not paying as much in taxes. During his campaign,

Trump expressed many times his desire to stimulate the American economy and he believes

leaving more money in the hands of the American people, through reducing their taxes, would be

the best way to do this.

3
2016. Trump Tax Reform that Will Make America Great Again. Accessed May 8, 2017. donladjtrump.com/trump-
tax-reform.pdf.
Donald Trump, being a business man, made many promises regarding changes to the Tax Code

to benefit American businesses. Much of Trumps goals regarding these reforms for businesses

stemmed from his desire to bring American businesses back to America. The tax reforms he

introduced regarding businesses included4:

Making the corporate tax rate 15 percent.

Limiting the top individual income tax rate on pass through businesses to no more than

the 15 percent stated above.

Abolish the many tax breaks available for businesses

Levy a tax on the accrued profits of U.S. companies being held overseas.

The parts of the reform that pinpoint businesses will help to reduce the number of businesses

leaving the United States in an attempt to escape the heavy burden of the current tax rates

imposed on businesses. With Trumps proposed policies, all businesses, no matter what form,

will be taxed at the same rate. Both of these changes are meant to be incentives for businesses to

return to or keep their operations the United States.

While all of these proposed changes appeal to taxpayers, it is still in question how Trump plans

to make up for all of this lost revenue for the United States Government. In 2015, analysts at the

4
2016. Trump Tax Reform that Will Make America Great Again. Accessed May 8, 2017. donladjtrump.com/trump-
tax-reform.pdf.
Tax Policy Center5 estimated that these tax cuts would lead to losses of around $9.5 trillion in the

next 10 years and another $15 trillion in the following 10 years. The solution Trump gave during

his campaign to this loss in revenue includes adjusting phase-outs to various deductions to

reduce the benefit to the extremely wealthy, the tax on overseas revenues, and eliminating

loopholes that various businesses and extremely wealthy benefit from. While these solutions are

feasible and most likely will work, it is not sure that those solutions alone will make up for such

a drastic loss in revenue. There will need to be reviews of government spending in order to

decrease the amount of tax revenue the United States government is currently spending and what

they will be capable of spending after these tax policies are enacted.

Overall, during his campaign, Donald Trump was very clear about the basic goals of his

prospective tax reform. He wanted to help the middle-class in America by reducing their tax

burden, simplify the tax code which he believed to be too complex, and grow the American

economy all while not increasing the United States current deficit. Once Donald Trump became

President Trump, Americans, and the world, were eager to see how he would make these

promises a reality. Now that he has released his beginning plans to put these promises into place,

there is even more discussion about the feasibility of these plans and its potential benefits and

impacts on America as a whole.

5
Jim Nunns, Len Burman, Jeff Rohaly, Joe Rosenberg. 2015. "An Analysis of Donald Trump's Tax Plan." Tax Policy
Center 1-33.
2017 Tax Reform

On April 26, 2017, Donald Trump finally released a basic plan for his changes to the Internal

Revenue Code. The first thing people criticized about it was the fact that it was extremely broad

and didnt give much detail. Before the White House press conference on April 26th, everyone

was given a one page description of the reform titled 2017 Tax Reform for Economic Growth

and American Jobs: The Biggest Individual and Business Tax Cut in American History. It

appears to be more of a general outline as opposed to specific legislation.6 The outline broke

down the reform into its effects on individual taxpayers and businesses as well as explained the

goal of the reform and the process that was going to begin to put these changes into place.

The goals laid out in the 2017 Tax Reform mirrored the goals President Trump expressed during

his campaign. He aimed to grow the American economy, simplify the Tax Code, provide tax

relief, and lower business tax rates. All of these things are what he ran his presidential campaign

on. Included in the Individual Reform section was the reduction of tax brackets, increasing the

standard deduction, and providing relief for families who incur expenses involved with child and

dependent care. The Individual Reform section also included the Presidents plan to simplify

the current Tax Code which involves eliminating many of the various deductions and exemptions

allowed to individual taxpayers. Finally, in the Business Reform section, he stated a new flat

business tax rate applying to all types of business, how overseas revenues would be handled, and

finally his desire to eliminate various tax breaks currently available to various businesses. Still,

6
Bonner, Paul. 2017. Trump's tax reform priorities unveiled. April 26. Accessed May 8, 2017.
http://www.journalofaccountancy.com/news/2017/apr/trump-tax-priorities-tax-reform-201716547.html.
the major part that was missing from this outline, besides more details, was President Trumps

plan to make up for this drastic loss in revenue the United States government would incur when

these revisions are put in place. Ultimately, the 2017 Tax Reform was very broad and failed to

explain the overall impact these drastic changes would have on American citizens, American

Businesses, and the United States as a whole in the upcoming years.7

Impact on Individuals

The three things that were targeted towards individuals that President Trump included in his

reform were the change in tax brackets, the change in standard deduction, and the change in

handling of the child and dependent care expenses. Like stated before, there isnt much more

detail that that included in the 2017 Tax Reform given out by the Trump Administration.

The proposed plan changes the current seven brackets to only three brackets. The new three

brackets would be 10%, 25%, and 35%. This reduces the highest tax bracket by 4.6% and

eliminates many of the intermediary brackets. However, because this reform lacks so many

critical details, it is uncertain as to what amounts of taxable income each of the new brackets

would effect. With fewer brackets, that means that someone who was in one of the brackets that

is eliminated could end up being grouped into a higher bracket then before. It is still a tossup as

to how many people this change in tax brackets will effect and ultimately benefit.7

7
Bonner, Paul. 2017. Trump's tax reform priorities unveiled. April 26. Accessed May 8, 2017.
http://www.journalofaccountancy.com/news/2017/apr/trump-tax-priorities-tax-reform-201716547.html.
According to the 2017 Tax Reform, the standard deduction that individuals are allowed to take

would be doubled. That means that for single individuals and those married filing separately

would be able to deduct $12,700 from their tax returns. Married filing jointly and surviving

spouse would be able to deduct $25,400 and heads of household individuals would deduct

$18,700. This simply reduces the amount of taxable income that the individual taxpayer must use

to calculate the amount of taxes due. This is the one of the least drastic change on the 2017 Tax

Reform.

Finally, the reform says nothing more than providing tax relief for families with child and

dependent care expenses. This is vague, but will definitely benefit middle-class working

families by allowing them even more of a deduction on their tax return. These changes will

definitely benefit the middle-class of America by limiting the number of possible tax brackets

they can be in as well as decreasing their taxable income through the standard deduction and

other deductions like the child and dependent care expense deduction.

Impact on Businesses

The main aspects of the Business Reform section include lowering the flat business tax rate

and the effect of changes on companies with operations and revenue outside of the United States.

President Trump stated that he plans to lower the business tax rate from the current 35% to 15%,

cutting it by over one-half its current rate. He previously proposed a 10% rate during his
campaign, but stated 15% in the 2017 Tax Reform. There was no mention of passthrough entities

in the 2017 Tax Reform which was a major concern to many during Trumps campaign. One

major problem with this lowering of the tax rate is the potential for individuals to form

passthrough entities, such as partnerships, and be taxed at the 15% business rate as opposed to

their higher, individual rate. After the release of the 2017 Tax Reform, President Trumps

Treasury Secretary, Steven Mnuchin, stated that there would indeed be laws set in place to avoid

this. However, once again the outline lacked enough detail for people to determine what those

laws might be.8

The second major feature of the Business Reform included the impact on U.S. businesses with

operations outside of the United States. The reform says there will be a one-time tax on trillions

of dollars held overseas. It does not mention a percentage or how the current laws will be

changes, just that they will be changing. This does not necessarily entice businesses to return to

the United States right now, but does provide them with the idea that the United States is aiming

to be a more competitive country for businesses to want to operate in. As President Trump stated

all throughout his campaign, he hopes to bring jobs and businesses back to America and that is

one of his top priorities.8

Impact on the Economy

The last time a tax reform like this took place in the United States was in 1986 during the Reagan

term. The 1986 Tax Reform simplified the income tax code, broadened the tax base, and

8
Bonner, Paul. 2017. Trump's tax reform priorities unveiled. April 26. Accessed May 8, 2017.
http://www.journalofaccountancy.com/news/2017/apr/trump-tax-priorities-tax-reform-201716547.html.
eliminated many loopholes in the Internal Revenue Code. However, since this tax reform in

1986, the Code continues to become more complex with over 70,000 pages as of 2013. The

United States has also failed to keep up with and be competitive in the world market in regards to

the corporate tax rates. While other countries have been reducing this rate for the past 30 years,

the United States has remained fairly steady with their corporate tax rate, with the last major

change being in 1986.9 The United States is due for an update on the Internal Tax Code in order

to begin being competitive with their foreign counterparts again.

The changes in the Internal Revenue Code are definitely going to benefit most American

taxpayers. This is due to the lowered tax rates and the limited number of possible brackets. These

new rates alone, will save many Americans thousands of dollars. The same goes for the

businesses when a lower corporate tax rate is imposed. However, the effect on the American

economy as a whole is still unsure. The Trump Administration has failed to provide the

American public with their plans to make up for this loss of revenue. These plans could

drastically effect the lower-class in the United States if cuts are made in areas that provide

support to these groups of people. Only time will tell the ultimate effect of these policy changes

on the United States economy, and ultimately the worlds economy.

9
Lundeen, Andrew. 2013. A Lot Has Changed in the 27 Years Since the Last Major Tax Reform. October 22.
Accessed May 8, 2017. https://taxfoundation.org/lot-has-changed-27-years-last-major-tax-reform/.
Conclusion

Many politicians, business people, and citizens are both excited and concerned about this drastic

change that President Trump is proposing. It has been over 30 years since a change like this was

made to the Internal Revenue Code which effects every single American individual and business.

Many people are hesitant about these changes due to the lack of information provided regarding

what these changes include, how they will be implemented, and the timeline for their

implementation. The next four years while Donald Trump is President of the United States will

be a huge turning point for the U.S. in becoming more competitive with its foreign counterparts

in regards to tax regulations.