President Trump’s administration has revealed plans for what it is calling ‘one of the biggest tax cuts in history’, which include slashing corporation tax to 15%, but has given few details of how the new regime would work or the timeline for its introduction
In a long awaited briefing given at the White House yesterday Gary Cohn, director of the National Economic Council, said this was ‘an historic day’, with proposals to take a ‘once-in-a-generation opportunity to do something really big.’
Treasury secretary Steven Mnuchin said the objective was to make US business ‘the most competitive in the world’, citing the removal of the current 35% corporate tax rate on worldwide income and deferral as a major barrier to this.
‘Under the Trump plan, we will have a massive tax cut for businesses and massive tax reform and simplification. As the President said during the campaign, we will lower the business rate to 15%. We will make it a territorial system. We will have a one-time tax on overseas profits, which will bring back trillions of dollars that are offshore to be invested here in the US to purchase capital and to create jobs,’ Mnuchin said.
Mnuchin said the new administration will return the top capital gains tax rate and dividend rate to 20%, repealing what he described as ‘the harmful 3.8% Obamacare tax on dividends and capital gains.’ Currently, the tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you're in the 10% or 15% ordinary income tax brackets. However, a 20% tax rate on net capital gain applies to the extent that a taxpayer's taxable income exceeds the thresholds set for the 39.6% ordinary tax rate ($415,050 for single; $466,950 for married filing jointly or qualifying widow(er); $441,000 for head of household, and $233,475 for married filing separately).
As regards personal taxes, Mnuchin said the plan was to cut taxes and simplify the tax code by taking the current seven tax brackets, 10%, 15%, 25%, 28%, 33%, 35% and 39.6%, and reducing them to only three brackets, at 10%, 25% and 35%.
All tax deductions other than mortgage interest, retirement savings and charitable deductions will be eliminated, and the ‘death tax’, or duty on estates will be repealed. The plan also includes reducing the alternative minimum tax (AMT) which allows better off taxpayers to choose between deductions in order to reduce their tax bill.
Mnuchin’s memo on the Trump tax reforms is just one page long, containing 227 words, and was described as setting out a ‘broad brush’ approach.
Despite previous promises to push through reform by August, Mnuchin would not give a timeframe for the changes. He also did not include any mention of the highly controversial border adjustment tax, which also formed part of Trump’s campaign pledges.
The one page memo was handed out to journalists at the briefing but is not online on official sources. CNBC, a US major news network, has shared the memo here.
