“The lower brackets are good news for our wealthy clients,” says Alvin Carlos, a financial planner and the managing partner of District Capital Management in Washington, D.C. “For those who are taxed at 28 percent and 33 percent currently, their rates will go down to 25 percent.”
The caveat to the new tax brackets is that they won’t protect the wealthiest. The plan gives congressional tax-writing committees the flexibility to add a fourth rate that taxes the highest earners to ensure progressivity, the White House said in a release.
The nine page outline also calls for repealing the alternative minimum tax (AMT), the estate tax and the generation-skipping estate tax, which could be a boon for the wealthy. (The White House proposal did not address the gift tax or basis adjustments at death.)
“I agree with eliminating all these taxes,” says Mary Angel, the owner of Coelho & Callahan in Aldie, Va. “People work around all of these anyway. I’d like to see them go.”
Will Deductions Disappear, Too?
While eliminating the AMT could benefit upper-middle-class clients, the plan would also do away with state and local income tax deductions, making the advantages uncertain. “In high income tax states like New York, New Jersey, California and Illinois, the AMT elimination may end up being a wash for a lot of upper-middle-income clients if the state and local income tax deductions are lost,” Kiely says.
Not surprisingly, the release of the tax outline has set off a whirlwind of negotiations as committees ramp up to write and pass legislation by the end of the year. Democrats and consumer groups have already cited numerous problems with the outline, saying they contain too many tax cuts for the wealthy and corporations and not enough meaningful relief for the middle class.