It’s campaign season, which means the presidential candidates are sharing their tax plans with promises to help the country. Republican front-runner Donald Trump released his detailed tax plan in September that he plans to implement if he’s elected. He developed his plan with the goal to provide tax relief for the middle class, simplify the tax code, help the economy, and stop the growth of the country’s deficit. It also promotes the cessation of unfair tax deductions and loopholes that cater to the rich and special interests.
Creating Just Four Tax Brackets
Under the plan, Trump will cut down the current seven tax brackets to just four as a way to simplify the current tax codes. By doing this, it creates a larger zero bracket for lower-income individuals and families. Under this law, those who make up to $25,000 for single filers, $50,000 for married filers, and $37,500 for the head of household will pay zero income tax. The top marginal income tax will be capped at 25 percent for those who make more than $150,000 for single filers, $300,000 for married filers, and $225,000 for the head of household. Capital gains and dividends will also cap at 20 percent for the same top tier.
Basically, in Trump’s plan, those who make less than $25,000 per year do not have to pay any taxes, while the wealthy will end up paying more money in taxes. His plan would save millions from having to pay taxes, and the middle class will save on average almost $1,000 every year.
In addition to appearing to help the average person, Trump’s plan will also help businesses by cutting the corporate tax rate to 15 percent for all companies, from small businesses to large corporations. He also has plans to eliminate certain penalties and deductions, especially for those that help the very rich, as well as the Alternative Minimum Tax and the Net Investment Income Tax. His plan also includes incentives to motivate corporations to bring their money back into the country rather than keeping it in foreign banks.
Will the Plan Help?
If the plan were to be implemented as Trump envisions, it would have a positive economic impact. According to the Taxes and Growth Model from the Tax Foundation, the plan would lead to an 11 percent growth of the economy. There would be 6.5 percent higher wages, which could help the economy. Furthermore, it would provide more incentives to work, leading to the equivalent of 5.3 million jobs. Additionally, most people would see an after-tax income increase by an average of 20 percent. However, it would reduce the federal revenue by $10.2 trillion after a decade of implementation. If government spending is not reduced sufficiently, this would lead to an addition of $10 trillion to the federal government’s already massive deficit. Trump says he will cut government spending to create a revenue neutral program, but many are skeptical that this is the case.
The big question is, will Trumps’ plan actually work, and more importantly, will it actually help the average person? Presidential candidates have a long history of making bold promises to cut taxes for the average American, but very few have actually followed through once they are in office. Trump’s plan is more liberal than many of his party’s conservatives feel comfortable implementing when it comes to taxes. This could make it difficult for him to pass it through Congress even if he is president, especially if Congress remains under the power of the Republicans. Critics also state that it will help Trump, his business, and his family more than the average American taxpayer. They also feel that Trump is just catering to popular opinion rather than actually creating a plan he actually intends to implement.
Does the Plan Help Those with Tax Debt?
Whether or not this plan will be effective in reality, it will not help the millions of taxpayers who owe significant debt due to back taxes and other federal tax problems. The IRS does have several programs in place that help with reducing federal tax debt, including payment plans, Offer in Compromise, and Penalty Abatements. If you owe money and are looking for a way to reduce your debt, contact Fidelity Tax Relief. Our tax professionals will help you to find the tax relief solution for your situation so that you can escape the burden of the IRS.