Are We Under Trump's Tax Plan?

When individuals ask, "Are we under Trump's tax plan right now?" the question raises important considerations about the current state of U.S. tax law and how historical changes influence today's economic landscape. Understanding the tax plans implemented by former President Donald Trump, especially the Tax Cuts and Jobs Act (TCJA), helps clarify this question.

Overview of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) was a comprehensive tax reform signed into law by President Donald Trump in December 2017 and went into effect for the 2018 tax year. Considered one of the most significant overhauls to the U.S. tax code in decades, the TCJA brought widespread changes across individual and corporate tax landscapes.

Key Features of the TCJA

1. Individual Tax Rates:

   • The TCJA reduced taxes for most income brackets by altering the thresholds and percentages.
   • Seven tax brackets were retained, but the rates were adjusted, reducing the top rate from 39.6% to 37%.

2. Standard Deduction:

   • The standard deduction nearly doubled. For single filers, it increased from $6,350 to $12,000, and for married couples filing jointly, it went from $12,700 to $24,000.

3. Personal Exemptions:

   • Personal exemptions were eliminated, which brought mixed impacts depending on household size and income.

4. Child Tax Credit:

   • The child tax credit was doubled from $1,000 to $2,000 per qualifying child, increasing the phase-out threshold, thus extending its benefits to higher-income families.

5. State and Local Tax Deduction (SALT):

   • Capped at $10,000, limiting the previous unlimited deduction for state and local taxes paid.

6. Alternative Minimum Tax (AMT):

   • The exemption amount was increased, reducing the number of people affected by the AMT.

7. Corporate Tax Rate:

   • The corporate tax rate was significantly lowered from 35% to 21% to enhance competitiveness.

8. Pass-Through Business Income:

   • Introduced a 20% deduction on qualified business income for pass-through entities, such as S-corporations and LLCs.

9. Estate Tax:

   • The exemption for estate taxes was doubled, allowing more estates to fall below the taxable threshold.

10. Mortgage Interest Deduction:

    • Limited to loans up to $750,000 for new homes purchased after December 15, 2017.

Sunset Provisions

The TCJA includes several provisions set to expire at the end of 2025. These sunset clauses apply to many individual tax relief measures. Unless extended by future legislation, tax rates, and deductions will revert to pre-TCJA settings.

Current Status Under the Biden Administration

As of this writing in 2023, the foundational elements of the TCJA remain intact. The IRS continues to implement its tax rates and structures. The current administration, under President Joe Biden, has signaled areas where it seeks modification yet has made minimal changes to the existing tax structure. Proposed shifts primarily focus on high-income earners and corporate taxes rather than widespread revisions to the TCJA framework.

Biden Administration Tax Proposals

The Biden administration's tax proposals, largely articulated in campaign platforms and policy discussions, focus on increasing taxes for high earners and corporations. Here are the primary elements:

1. Individual Income Tax for High Earners:

   • Increase the top income tax rate from 37% back to 39.6% for individuals earning over $400,000.

2. Corporate Tax Rate:

   • Proposed to increase the corporate tax rate from 21% to 28%.

3. Capital Gains Tax:

   • For individuals earning over $1 million annually, capital gains taxed at ordinary income rates, potentially aligning the rate to 39.6%.

4. Social Security Taxes:

   • Earnings over $400,000 subject to Social Security payroll taxes, introducing a "donut hole" where this tax does not apply between the wage base limit and $400,000.

5. Estate Tax:

   • Lowering the estate tax exemption to pre-TCJA levels and changing the step-up basis for inherited assets.

Legislative Environment

Changes to tax policy require congressional approval, and the existing political landscape often influences the success of tax reforms. While the Democratic party has introduced elements of the Biden administration's tax agenda, significant legislative hurdles exist.

Trump Plan Legacy and Its Continuing Influence

As of now, the architecture of the Trump-era tax plan remains influential. Until the sunset provisions take effect or Congress passes new legislation, many taxpayers and entities continue to find their finances affected by the TCJA.

FAQs on Tax Plans and Expectations

How does the tax plan affect the average taxpayer today?

The typical taxpayer might notice increased standard deductions, altered tax brackets which can reduce overall tax burdens, and certain caps, like the SALT deduction, influencing take-home pay. The ongoing influence of the TCJA means that many benefits and limitations first experienced in 2018 still apply today.

Will my taxes increase due to potential new legislation?

Possible changes under the Biden administration could affect high-income earners and corporations. However, those earning below $400,000 and smaller businesses may experience minimal tax rate changes based on current public proposals.

What should I expect for future tax seasons?

Key TCJA provisions are scheduled to sunset after 2025 without congressional action, potentially reverting tax structures to pre-2018 norms. Taxpayers should stay informed about potential legislative choices that may impact future tax liabilities.

Are there any immediate steps to take regarding tax planning?

Consider consulting a tax professional to understand how ongoing policy variables might affect your finances, especially regarding investment decisions, estate planning, and business operations.

Conclusion

In summary, the U.S. tax system continues to operate predominantly under Trump's Tax Cuts and Jobs Act. Its existing infrastructure shapes individual and corporate tax liabilities. While potential new legislative efforts under the Biden administration propose specific changes, most household financial dynamics remain anchored on TCJA parameters. Taxpayers are encouraged to keep abreast of developments and potential impacts on personal and professional finances.

For those seeking greater insight or needing specific guidance, consulting with a financial advisor or tax professional is highly recommended. This ensures staying ahead of potential changes and optimizing financial decision-making in a frequently evolving policy landscape.