Proposed Tax Changes for Individuals Under GOP House Blueprint and Donald Trump

With a new upcoming presidency, there are many changes to individual and corporate taxation being proposed by both the House GOP under Paul Ryan and Kevin Brady as well as President-elect Donald Trump. What actually gets implemented legislatively is all speculative at this point. However, looking at the proposals brought forth by both the House GOP and Donald Trump helps illuminate from a bird’s eye view where reform could be headed. What ultimately gets passed, if anything gets passed at all, will probably only resemble the current plan in concept, and vary significantly in detail.  We will follow as the legislation ultimately develops. Below we have outlined the changes proposed by both on individual taxation.

Top Individual Tax Rate Reduced to 33%
The House blueprint and Trump plans both agree, the rates would generally be consolidated into three brackets – 12%, 25%, and 33%. In contrast, the current progressive rates comprise of seven, with a top marginal rate of 39.6%.

Elimination of Personal Exemptions
Under the House GOP plan, personal exemptions would be eliminated.

Standard Deduction
Both the house blueprint and Trump propose an increase to standard deduction amounts.  Under the House blueprint, the standard deduction would increase for individuals to $18,000 from the current amount of $6,300. For married couples filing jointly, it would be increased to $24,000 from $12,600. According to the blueprint, the effect of this would be to consolidate the current basic standard deduction and personal exemptions. This is why the plan would propose the elimination of exemptions, discussed above.

Under the Trump tax plan, the standard deduction amount would more than double the current rate to $15,000 for individual taxpayers from $6,300, and to $30,000 from $12,600 for married couples filing jointly. The Head of Household filing status would be eliminated.

Itemized Deductions
The House GOP blueprint proposes eliminating all itemized deductions except for the Mortgage Interest deduction and charitable giving. In contrast, under Trump’s proposals, there would be a cap on the amount of itemized deductions an individual taxpayer could claim. Single taxpayers would be allowed to take up to $100,000 in itemized deductions and a couple would be permitted to take $200,000. Any itemized deductions above these amounts would be disallowed. No specifics have been elaborated on how the current phase-outs in place under current law would be affected or continued with these new rules.

Tax Rates on Capital Gains, Dividends, and Interest Reduced
Under the House GOP blueprint, a taxpayer would be allowed to deduct 50% of net capital gains, dividends, and interest income. The net amount would then be taxed at rates depending on the tax payer’s bracket of 6%, 12.5%, and 16.5%, see further discussion in the corporate tax changes. Under both plans, the ACA 3.8% surtax on certain investment income would likely be repealed. The capital gains rates under current law max out at 20% in addition to the 3.8% surtax currently in place for certain taxpayers. Trump’s tax plan would keep the preferential rate towards capital gains the same as it is now under current law (20%), aside from the elimination of the 3.8% ACA medicare surtax.

Childcare and Eldercare
Under the house GOP blueprint, there would be allowed a refundable credit of $1,000 for childcare expenses as well as an additional $500 credit that would be non-refundable.  A phase-out would apply for taxpayers with AGI over $150,000.  According to the blueprint, and as discussed above, the effect of this would be to consolidate the current childcare tax credit with the personal exemption for children and dependents.

In contrast, Trump has proposed an above-the-line deduction that caps at the state average cost of childcare for age of a child. The deduction would not be allowed for single filers making $250,000 or more. For married couples filings jointly, the deduction would be phased-out at $500,000. A limit would be in place for a max of 4 kids. The deduction amount for eldercare would be capped at $5,000.

Elimination of Individual AMT
In both the house blueprint and the Trump proposals, individual AMT would be repealed.

Estate and Gift Tax Elimination
Under both the house blueprint and Trump’s proposal, these taxes would also both be eliminated. However, Trump would propose a capital gains tax on estates over 10 million dollars and a disallowance of a step- up in basis at death. There would be an exemption for small businesses and farms, although there is not yet a definition on which businesses would fall under this category. In addition, to curb abuse, Trump proposes disallowing the contribution of appreciated assets into private charities.

Other Notable Changes under the House Blueprint:
The blueprint also outlines the possibility of simplifying and streamlining current tax benefits for higher education and increasing tax incentives for retirement savings. However, no details on what would specifically be implemented or changed has been elaborated on with respects to these two areas. We will continue to monitor and comment on when details of new policies become evident.

It’s clear that there would be many significant changes to the tax structure under the Trump tax plan. While the changes proposed are speculative at this time, we will monitor the legislative process for planning opportunities. For additional information, please contact an Anders advisor.

Below is a chart summarizing the proposed changes. View a PDF version of the Trump and GOP Proposed Changes Chart.

Trump and GOP Proposed Changes Chart