Financial advisors began getting questions from investors almost immediately. Will Thomas, a managing principal and senior financial advisor with the Liberty Group in Washington, D.C., said he had already received calls from two clients about the proposed elimination of the deduction for state and local taxes, “which may or may not be offset by any number of things, including the standard deduction being almost double,” says Thomas.
The standard deduction would double to $12,000 for single filers ($24,000 for married couples), but the lowest tax bracket would be rising to 12 percent from 10 percent, giving Congress carte blanche to provide “additional tax relief” that has yet to be determined.
At the same time, many itemized deductions would be eliminated, with the exception of mortgage interest and charitable giving, so the assertion that deductions are doubling is misleading. Currently, the plan would allow taxpayers to take the personal exemption even if they also itemize deductions, but you get to take the standard deduction only if you forgo itemized deductions, says Tim Steffen, the director of advanced planning for Baird’s private wealth management business.
While simplification was one of Trump’s stated goals, not all advisors believe this plan delivers on the president’s promise. Angel says she’d prefer it if the entire code was scrapped and replaced. “The tax code is so cumbersome, fixing it is like trying to fix a house that needs to be torn down. It’s best to just gut it and start from scratch,” she says. “To keep patching and adding layers is maddening.”
Small business groups and their tax analysts are also giving the proposal mixed reviews. While the U.S. Chamber of Commerce and the National Federation of Independent Business call the outline a good first step in tax relief, the Small Business Majority, with a network of 55,000 small business owners, takes exception to several facets of the proposal, including the pass-through tax cuts.
John Arensmeyer, the founder and CEO of the Small Business Majority, says that cutting the top individual rate from 39.6 percent to 35 percent and the top pass-through rate to 25 percent will help very few small business owners. “The current top tax rate is paid by less than 2 percent of pass-through business owners,” says Arensmeyer. “Nearly nine in 10 businesses that pass through their income already pay at the 25 percent rate or less.”