So, What to Think About the Tax Proposal?

 So, What to Think About the Tax Proposal?

Yesterday, the Trump administration released its much anticipated tax plan. During the unveiling, Steven Mnuchin called it “the biggest tax cut” in American history. What’s in it? And what will happen? Let’s dig in.

-This plan cuts the corporate tax rate to 15 percent from the current rate of 35 percent. Folks who own their own business would be taxed at the 15 percent corporate rate instead of the personal income tax rate.

-Individual tax rates would be reduced down to three brackets, 10 percent, 25 percent, and 35 percent, and the standard deduction would double to $12,700 for individuals and $25,400 for joint filers.

-Itemized deductions, except for mortgage interest and charitable donations, would be eliminated.

-A one-time repatriation tax would let companies bring back overseas cash at a lower rate.

-The estate tax and the alternative minimum tax are done away with.

-The plan does not include a border adjustment tax.

Contrary to suggestions earlier in the week, this plan does not include infrastructure spending designed to woo Democrats. There are no budget cuts associated with this either. According to Mnuchin, the plan will pay for itself through economic growth. He says he expects the GDP to grow at three percent annually. (The corporate rate cut could possibly pay for itself. It worked very well in both Canada and the UK.)

Importantly, the plan is a broad outline, not specific legislative text. Paul Ryan and Mitch McConnell responded yesterday to the plan saying that for Congress it “will serve as critical guideposts.”

Can something like this pass Congress? It’s far too early to say. There are a lot of tricks that could trip this up and at the same time, there’s lots of tricks to get this through. Where it needs 51 or 60 votes in the Senate depends on the final legislative language and how it's scored.

There are lots of predictions both ways on how this could break down and no doubt we’ll hear more about it in the coming weeks and months. But at the moment, it’s too early to make any predictions.