17 Ways to Benefit from Trump's Tax Plan (Hint: Be Wealthy)
President Donald Trump's tax plan was touted by his camp and the Republican Party as a series of cuts to individual and corporate tax rates that would boost investment and economic growth, making America "win again like never, ever before." But though the law reduces taxes for all income groups to start, bipartisan analyses of the plan's fine print and long-term effects make clear some will be winning more than others. Here are a few tactics taxpayers might try to make the most of it -- on top of your regular tax saving measures.
Trump went on record saying he wanted the nation's 35 percent corporate tax rate cut to 15 percent. As with many other measures proposed by the president, this was blunted in the final law, which lowers the rate to 21 percent (the lowest since 1939). Unlike individual cuts due to expire in 2023, these business cuts are supposedly permanent. The law also eliminates the corporate alternative minimum tax, a parallel tax system that requires filers earning above a certain amount to calculate their taxes twice and pay the higher amount. Without the AMT, businesses will be able to take advantage of more exemptions and itemized deductions to lower their tax bills beyond the new 21 percent rate.
Here's more good news for corporations under Trump's tax plan: It moves the United States to a territorial system. This means multinational companies will no longer have to pay U.S. taxes on money they claim to have earned abroad, no matter how low the foreign nation's tax rate. When that income is brought back to the United States, however, it'll be taxed between 8 and 15.5 percent. Despite Trump's "America First" rhetoric, this move will likely incentivize companies to keep their income in foreign tax havens rather than invest domestically.
Trump's Council of Economic Advisers allege that the bill's sweeping cut to the corporate tax rate will boost income for average workers by up to $4,000 a year. The White House analysis forecasts that 70 percent of benefits from the rate cut will go to average workers. The Tax Policy Center, Congressional Budget Office, and the Treasury are less optimistic, predicting that workers will get only one-quarter of that benefit, with the remainder going to corporate shareholders. Plus, those workers who do get raises are likely to be managers and executives, not average- or minimum-wage employees.
Even if their cuts are doomed to expire, individual taxpayers across the board will see their federal tax rate decline for five years. That's especially true for those in the top 95 to 99 percent of earners, who'll see a 2.2 percent increase in after-tax income. The number declines steadily for lower-income ranges, with an increase of only 0.4 percent for the bottom-fifth of earners. In other words, the progressive tax code just got more regressive.
In simpler terms, the average taxpayer earning between $50,000 and $85,000 a year will get a 2019 tax cut of $850. The average taxpayer earning more than $1 million, on the other hand, will get $34,130. The disparity is due to widen when the individual tax cuts expire in 2027, at which point half of taxpayers earning more than $500,000 will get a $500 tax cut, compared with 5 percent of those earning between $50,000 and $75,000.
The top estate tax rate of 40 percent applies when multimillionaires transfer property valued at more than $5.5 million to their next of kin. Trump's tax plan doubles the deduction to $11.2 million for singles and $22.4 million for married couples, so the heirs and heiresses to vast estates -- like Trump's own children -- get to keep more of their inheritance.
One provision of the tax law creates a 20 percent income deduction for the owners and sole proprietors of pass-through businesses, which can include hedge funds, LLCs, and real estate companies such as the president's. The definition of a pass-through company was also widened, so as well as small businesses, many more highly paid owners in certain industries -- such as commercial real estate, with few employees but lots of property value -- will be able to qualify for the lucrative deduction.
The combined benefits of a reduced corporate tax rate, reduced pass-through rates, and accelerated expensing of capital costs is estimated to boost oil company asset values by $190 billion. The tax plan also moved to allow oil drilling in the Arctic National Wildlife Refuge, which won't be profitable until oil prices reach or exceed $70 a barrel.
Under U.S. tax law, flights sold by an "aircraft management company" comes with two taxes for passengers: a fee of 7.5 percent on the ticket price, and a flat dollar amount for each segment of a domestic flight. It was unclear whether it applied to companies that maintain private jets on behalf of their owner -- until now. The Republican tax law goes against a 2012 IRS memo to formalize a policy that transportation via private jet isn't subject to the same taxes as commercial air travel. That should help supplement the billion-plus dollars in tax breaks private jet owners already get each year.
The tax law also cuts by 16 percent what are known as sin taxes on purchases of beer, wine, and liquor, a move lobbied for by the alcohol industry for years. That's good news for distillers and liquor stores, as lower prices are indeed linked to more alcohol purchases, but not so much for public health. The Brookings Institute predicts the change will also cause 1,550 more alcohol-related deaths each year, on top of the current annual toll of 88,000.
"H&R Block will not be supporting Donald Trump, I can tell you," the president boasted in 2017, implying his law would simplify the tax code, eliminating the need for costly tax preparers. But his final law did little to simplify the tax code and added preferences for special interests. Tax accountants at H&R Block and elsewhere can rest easy knowing Americans need them as much as ever to make sense of the nation's labyrinthine tax code.
The tax plan also eliminates personal exemptions, which let taxpayers deduct $4,050 for every taxpayer and dependent claimed on their return. This will be offset by a standard deduction increase to $12,000 for individuals -- benefiting 47.5 percent of all filers -- but that means taxpayers with three or more personal exemptions/dependents to claim will still pay taxes on a greater share of their income.
Under new tax law, parents who want to enroll their children in costly private or religious K-12 schools now have 529 savings plans to choose from that will help them cover the cost of tuition. That's great news, considering how public school budgets seem to be faring under Trump Education Secretary Betsy DeVos.
The GOP tax plan does something to help parents by doubling the child tax credit to $2,000 for a child under 17. The deficit-inflating law also makes many more wealthy people eligible for the dollar-for-dollar credit to their federal returns, giving it to individuals with income up to $200,000 (up from $75,000), and married couples up to $400,000 (up from $110,000).
In addition to eliminating many other itemized deductions, the Trump tax plan imposes a cap of $10,000 on state and local tax deductions on federal returns. This won't much affect taxpayers living in states and localities without significant income tax rates, while those in high-tax coastal states with expensive housing markets where property taxes often exceed $10,000 -- areas that coincidentally tend to vote Democrat -- are more likely to see their federal payments spike.
Trump's tax plan doubled as a repeal to the Affordable Care Act's individual mandate, meaning an estimated 13 million mostly younger Americans will drop their health care plans in 2019. This will likely cause a decline in public health and preventative care as well as loss of revenue for health care businesses, resulting in insurance premiums increases of up to 10 percent a year beginning in 2019.
Despite the increased health care costs for seniors, the biggest losers under the tax law will be younger generations around long enough to pay for its long-term effects, which includes an additional $1.5 trillion added to the federal deficit over 10 years. Many if not most of the bill's key benefits will go to households at the top of the economic ladder that tend to be older and whiter than the general population. Younger generations with less-established wealth will see fewer of the tax cuts but more of their ramifications in the years to come, including increased interest rates and likely cuts to federal health care and education programs. Unlike many boomers, they'll also live long enough to see their individual tax cuts expire in 2025, causing a tax increase by 2027 for 53 percent of Americans.