Unvarnished, Down-to-Earth Analysis of Trump's Tax Proposals: What You Need to Know
Donald Trump's Proposed Tax Shakeups Decoded
Six tax policies proposed by Trump that online platforms should be aware of:
Here's a lowdown on the six major proposals from President-elect Trump's tax plan, complete with expert insights and critical analysis. Remember, the financial health of your organization and personal savings hinge on keeping a close watch on these developments.
1. Tariffs: The New Trade Warfront
Trump intends to slap 60% tariffs on Chinese imports, and 25-100% tariffs on Mexican imports, with a whopping 100% tariff on cars sold by Chinese automakers in the US. This isn't just a political squabble—it's about to become a wallet issue, too.
When asked about the pace of tariff implementation on Bloomberg Television, Joseph LaVorgna, former chief economist at the National Economic Council under Donald Trump, set the record straight. "People think there'll be overnight tariffs across the board; 60% or more for Chinese goods... but it's really going to be a nuanced, transactional approach," he stated.
Tariffs won't just hit consumers in the pocketbook—they could also discourage the use of unethical supply chains in tech production, which has been underreported in Environmental, Social, and Governance (ESG) assessments, according to LaVorgna. "Tariffs could make trade fair, ensuring the U.S. doesn't have an unfair disadvantage in environmental regulations and worker protections," he added.
2. Tax Cuts and Jobs Act Extension: Tick or Tock
The Tax Cuts and Jobs Act (TCJA), due to expire shortly, would be maintained under Trump, staving off $4 trillion in tax hikes for taxpayers. However, this tax break comes at a price; as written by John W. Diamond, director of the Center for Public Finance at the Baker Institute at Rice University, in a recent column, extending the tax cuts would further burden the national debt, already teetering on the edge of sustainability.
Diamond argues that, while extending the tax cuts is beneficial to American households and the economy overall, avoiding additional debt would be vital to prevent a steep increase in the deficit and national debt.
3. Dropping the Corporate Tax Rate: Giving Domestic Manufacturers a Boost
Trump plans to slash the corporate tax rate from 21% to 15% for businesses that manufacture goods domestically, and by about 1% for companies based outside the US. This move is designed to incentivize corporations to produce goods in the US, boosting employment and domestic manufacturing.
4. Social Security and Tipped Wage Exemptions: Aiming for Middle- and Lower-Class Relief
Trump has proposed two significant tax cuts to aid middle- and lower-income Americans: eliminating taxes on Social Security, tipped wages, and overtime pay.
Discontinuing taxes on Social Security would rule out a significant revenue source, with the fund's ability to finance all benefits expected to end by 2035 if left unchanged. Tax-free tips pose a challenge for websites in the restaurant industry when it comes to accurately reporting employee compensation. Even in pro-worker states like Massachusetts, voters have rejected higher wages for tipped employees.
5. Elimination of Foreign Tax Policy for U.S. Citizens Abroad: A Tiny But Wealthy Impact
The U.S. is one of two countries to levy taxes on foreign-earned income by citizens abroad. While Trump has expressed his intention to abolish this policy, it affects a small segment of wealthy individuals with over $126,500 in foreign-earned income before taxation, according to Blake Oliver, host of The Accounting Podcast.
For those subject to double taxation, the foreign tax credits available can help offset the cost. However, the number of taxpayers in this category is low.
6. Increase or Elimination of the SALT Cap: Wooing High-tax State Workers
Trump has floated the idea of increasing or eliminating the cap on state and local tax (SALT) deductions, currently capped at $10,000. As businesses motivate employees to return to offices in big cities and high-tax urban centers face a commercial real estate crisis, expanding SALT deductions could attract and retain talent in these areas, without requiring salary hikes to offset high taxes.
Companies located in high-tax states, where workforce attrition is a concern, might find it easier to keep and lure skilled professionals with the expanded SALT deductions.
[1] - The Balance[2] - Forbes[3] - Wall Street Journal[4] - IHS Markit[5] - Bloomberg
- Experts suggest that the potential tariffs Donald Trump plans to impose on Chinese and Mexican imports could greatly affect the wallets of consumers, not just the political landscape.
- For Joseph LaVorgna, former National Economic Council chief economist under Donald Trump, tariffs could also encourage ethical supply chain practices in tech production, previously overlooked in Environmental, Social, and Governance (ESG) assessments.
- According to the tax plan, Trump aims to reduce the corporate tax rate from 21% to 15%, which could potentially incentivize corporations to manufacture goods domestically and boost employment.
- Trump's proposals include eliminating taxes on Social Security, tipped wages, and overtime pay to provide relief to middle- and lower-class Americans, although there are concerns about the potential impact on Social Security funding and accurate employee compensation reporting.
- Trump's intention to abolish the requirement for U.S. citizens abroad to pay taxes on foreign-earned income affects a small number of wealthy individuals with more than $126,500 in foreign-earned income, as pointed out by Blake Oliver, host of The Accounting Podcast.
- Trump has suggested increasing or eliminating the cap on state and local tax (SALT) deductions, which could help attract and retain talent in high-tax urban centers, potentially preventing the need for salary hikes to offset high taxes.
- Economist John W. Diamond argues that extending the Tax Cuts and Jobs Act could further burden the national debt, even though it would benefit American households and the economy.
- In a recent column, Diamond contends that avoiding additional debt is crucial to prevent a steep increase in the deficit and national debt.
- If the Tax Cuts and Jobs Act is extended, it could lead to $4 trillion in tax hikes being avoided for taxpayers, as proposed by Trump.
- These six proposals from President-elect Trump's tax plan require close monitoring for those in finance, investing, business, and personal finance as they have the potential to significantly impact the financial health of both organizations and individuals.
