Trump’s Tax Policy

The 58th U.S. presidential election of 2016 is over. The Republican Party nominee, Donald Trump, defeated the Democratic Party nominee, Hillary Clinton. Trump is expected to take office as the 45th President on January 20, 2017 and he promises to ‘Make America Great Again!’

With Republicans’ domination over the House and Senate, we can expect many of Trump’s tax policy will have big impact to our lives shortly after his administration takes off. Here are some major tax reform Trump promised during his presidential campaign:

Corporate Tax Rate Reduction to 15% - the United States has the third highest general top marginal corporate income tax rate in the world at 39.1 percent (consisting of the 35% federal rate and a combined state rate). Trump vowed to introduced a single corporate federal tax rate of 15% to all businesses in an effort to put more money into the hands of businesses to create more jobs and investments in the U.S., which would allow U.S. businesses to be more competitive in international market.

Repatriation Holiday - under present law, the U.S. tax on foreign earnings of foreign corporate subsidiaries is deferred until it is distributed back to the U.S. shareholders, generally. The government estimates as of 2015, approximately $2.6 trillion of earnings of foreign corporate subsidiaries has not been taxed and is undistributed. Trump plans to introduce a special corporate tax repatriation holiday rate whereby corporations with money stashed overseas would be able to pay a tax rate of 10% on that income in order to bring the money back into the U.S. The repatriated cash would then be reinvested in the U.S. creating jobs and expansion of U.S. businesses.

Pro-U.S. manufacturing – Trump plans to allow firms engaged in manufacturing in U.S. to elect to expense capital investment in lieu of taking deduction for interest expense. Additionally, Trump promised to increase cap on business tax credit for on-site childcare and allow businesses that pay a portion of employee childcare expenses to exclude those contributions from income.

Individual Tax Rate – currently, individuals are subject to top marginal tax rate of 39.6% plus 3.8% of net investment income tax. Trump plans cutting the current seven brackets down to three: with 12%,25%, and 33% rates, and would repeal the net investment income tax. Additionally, he plans to eliminate AMT tax regime.

Elimination of Estate Tax – currently, the U.S. government charges death tax or estate tax of 40% on estate with value in excess of $5.45 million. Trump’s tax reform would eliminate death tax. Rather, the beneficiaries of an estate take the assets with a tax-free, with no “stepped-up” basis. For rich, best time to die is during Trump’s presidency for estate tax planning purposes.

Obamacare – Trump believes the Affordable Care Act, also known as “Obamacare,” is a total “disaster” and has failed on cost and quality of health care. He proposed to repeal and replace Obamacare with “something absolutely much less expensive.” During his campaign, Trump proposed a series of measures that would allow people to buy affordable health insurance policies outside of the Obamacare exchanges. These measures include promoting tax-free health savings accounts, high-deductible health plans and health savings accounts, and boost competition in health insurance market by allowing insurers to sell policies across state lines.