On Wednesday, President Trump revealed his tax reform plan. The new tax plan, which did not offer many details, can cut taxes for high-income individuals and some middle-income families. Also, President Trump’s tax reform plan could also cut taxes for small and large businesses. The new tax plan would increase the standard deduction and would cut out many other common tax deductions.
That said, it is hard to know how many taxpayers would be affected by the new tax plan and the White House will have to negotiate with Congress on the final changes to the tax plan, which could alter the outcome if representatives push back on Trump’s new plan.
President Trump’s Tax Reform Plan Changes
Changes to Standard Deductions
According to the Washington Post, the biggest changes to the current tax system include larger standard deductions, which will result in lower taxes. Under the new plan, married couples who file taxes together would not owe income taxes on the first $24,000 of income. As a result, fewer people will need to file itemized deductions leading to an easier tax filing process. Another significant change would be the elimination of many tax deductions. Consequently, many taxpayers will no longer be able to write off expenses including medical and property taxes.
Changes to Tax Brackets
President Trump’s tax plan also includes a proposal to reduce the number of tax brackets from seven to three with tax rates of 10%, 25% and 35%, the Washington Post reports. At this point, tax brackets range from 10% to 39.6%, based on an individual’s total income. This new tax plan would immediately benefit taxpayers who bring home a significant amount of money; While low-income families will not feel much of a difference.
Another important change would be an increase in tax benefits for Child and Dependent Care Tax Credit. Trump is currently considering expanding the tax credit, which allows parents to receive a deduction of up to $2100, based on how much they spent on childcare every year.
Changes for high-income earners
The plan will also eliminate to taxes that typically impact high-income individuals. The first tax is the alternative minimum tax, which the US government would bill high-income earners a minimum tax if they claimed numerous tax breaks; The second tax that would be eliminated under Pres. Trump’s new plan is the estate tax. The estate tax affects people who inherit wealth or businesses worth more than $5.5 million.
President Trump is also seeking to cut taxes for small businesses. Under the proposal, small businesses would pay a lower tax rate of 15%.
So how did Wall Street react to the news?
The S&P 500 fell 1 point, the Dow Jones Industrials dropped 21 points, and the Nasdaq barely moved, following the news. That said, overall more stocks rose than fell on Wednesday.