Over the past several weeks, we have written extensively on the topic of tax cuts, from Trump campaign promise through passage and implementation of the Tax Cuts and Jobs Act of 2017. As we stated recently, early results are in, the economy is booming, and more Americans are employed than at any time in our history. History tells us that tax cuts work every time they are tried.
According to the Administration, there is more help on the way. President Trump is proposing a follow-up tax cutting bill for 2018. With that refreshing attitude in mind, we have prepared a “wish list” for Round 2 of Trump-era tax cutting. (According to Grover Norquist of Americans for Tax Reform, the goal is for a subsequent tax cut in each year of the Trump Administration.) Here is how we think the Administration should approach cutting taxes in 2018:
- Corporate Tax Rate. Originally, the goal was a 15% tax rate for all businesses, regardless of size. This was dramatically lower than the 35% rate in effect during 2017. The actual reduction to 21% represents a victory for tax cutters, but 15% should remain the long-term goal. We will be more likely to receive another 1% cut in the 2018 update.
- Small Business Tax Rates. The 2017 Act nearly created a disparity in taxation that would have been burdensome for the smallest businesses, but an amendment prior to passage effectively equalized the rate for individual and small business. As large corporation rates continue to fall, small businesses must receive the same reductions.
- Individual Tax Rates. Most individuals received a rate cut and broader income brackets, resulting in average tax savings of $2,700 for American families. Higher income Americans were not treated to significant reductions, and as such would make a good target for further cuts. Releasing more capital from high earners stimulates investment in the American economy. Also, for all individuals, the rate cuts are due to expire in the year 2025, and must be made permanent.
- Itemized Deductions. The new, larger Standard Deduction eliminated the need to itemize for many Americans. The represents a good start, but there were some “holes” left in the allowable deductions list:
- Medical Deductions were phased out after two years, and we believe they should be restored and made permanent. In any year, this deduction affects very few people, but those affected are having a rough year, paying unusually large medical expenses. We could all help them a little.
- State and Local Tax (SALT) deductions were capped at $10,000 annually. This had a profound effect on taxpayers in high tax states. While those of us in Florida and Georgia were relatively unaffected, We are not without sympathy for the sudden shock to the budgets of people living and working in other geographic areas. Some phasing in of the reduction would be helpful to these taxpayers.
- Estate Tax (including Gift Tax and Generating-Skipping Transfer Tax) were vastly improved by a doubling of lifetime exemptions. We continue to believe, as always, that these taxes should be totally and permanently eliminated.
Momentum for cutting taxes is high right now, and Congress should jump on this opportunity. Passage of another round of cuts prior to the election would be a catalyst for election turnout on behalf of Americans who are enjoying new-found or improved prosperity.
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