A Look at Donald Trump’s Tax Proposals – Part of Our White House Walkthrough Series

Welcome back, Informed Taxpayers! In this edition, we continue our deep dive into the tax proposals of the current presidential candidates, following our recent review of Vice President Kamala Harris’s proposals. Today, we focus on former President Donald Trump’s tax plans as discussed in Episode 106 of the Teaching Tax Flow: The Podcast . These proposals could potentially reshape the landscape of both business and individual taxes, so let’s break them down.

Video link to the podcast episode - https://youtu.be/cict-sqpafI?si=zSN6T4RdQ4FYf55W

Audio link to the podcast episode - https://teachingtaxflow.transistor.fm/episodes/ep-106-2024-election-tax-proposal-review-donald-trump

Business Taxes: Corporate Income Tax Cuts

One of the most significant aspects of Trump’s tax proposals is his continued emphasis on reducing the corporate income tax rate. Under his administration, the Tax Cuts and Jobs Act (TCJA) of 2017 reduced the corporate tax rate to 21%, a substantial drop from the previous rate of 35%. Trump aims to push this further by lowering the corporate tax rate to 20%.

Even more notably, Trump proposes a 15% corporate tax rate for businesses that manufacture their products within the United States. This would create a strong incentive for domestic production, although questions remain about how the IRS would certify or enforce these manufacturing criteria. Will businesses be able to certify this on their tax returns, or will we see a more rigorous auditing process?

No Changes to Capital Gains or Dividends

Trump has not proposed any changes to the long-term capital gains or qualified dividend tax rates. Currently, long-term capital gains are taxed at 0%, 15%, or 20%, depending on income levels. This structure incentivizes long-term investment and discourages short-term speculation, aligning with the broader goals of the TCJA.

SALT Deduction Cap Removal

A key element of Trump’s tax proposal involves the state and local tax (SALT) deduction cap, which is currently limited to $10,000 under the TCJA. This has been a contentious issue, especially for taxpayers in high-tax states such as New York, California, and New Jersey. Trump’s plan includes eliminating the SALT deduction cap, allowing taxpayers to fully deduct their state and local taxes once again. This change would benefit those in high-tax states but could reduce federal revenue significantly.

Estate and Wealth Taxes: A Permanent Higher Exemption?

The current estate tax exemption sits at approximately $13 million, thanks to the TCJA, but it’s set to sunset in 2026, reverting to pre-TCJA levels around $5 million. Trump proposes making the higher estate tax exemption permanent. This would benefit wealthier individuals and families, potentially shielding millions of dollars in assets from estate taxes.

Child Tax Credit Increase

Trump’s vice-presidential running mate, J.D. Vance, has proposed increasing the child tax credit to $5,000. This is a significant jump from the current $2,000 credit. While this increase would benefit families, it’s likely that the credit would still be phased out for higher-income taxpayers, which is something to keep in mind when planning for 2024.

Exempting Social Security Benefits from Taxation

Perhaps one of the most surprising aspects of Trump’s proposal is his suggestion to exempt Social Security benefits from taxation. As it stands, up to 85% of Social Security income can be taxed for higher-income individuals. Trump’s plan to eliminate these taxes could have a substantial impact on retirees, though it remains unclear how this would be financed.

Tariffs: Funding Tax Cuts?

To offset some of the revenue losses from these tax cuts, Trump has proposed significant tariff increases. His plan includes a universal baseline tariff of 10% to 20% on all U.S. imports, alongside a 60% tariff on imports from China. These tariffs could help finance his tax proposals, but they also risk increasing consumer prices and reducing global trade.

Final Thoughts: What This Means for You

The proposals laid out by Trump focus on reducing taxes across the board, particularly for businesses and high-income earners. However, these reductions could lead to higher tariffs and potentially a reduction in federal services. It’s essential to stay informed and understand how these changes might impact your tax strategy. Should these proposals be implemented, taxpayers in higher-income brackets and those involved in manufacturing may see significant tax savings, while tariffs on imports could affect a broad spectrum of industries and consumers.

As always, these are just proposals and not set in stone. Changes are likely as these ideas move through the legislative process. Stay tuned to The Informed Taxpayer and the Teaching Tax Flow podcast as we continue to monitor and analyze these developments.

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