Washington – The new tax plan released by the Trump administration Wednesday would slash taxes for corporations and eliminate the estate tax, double the standard deduction and reduce the number of tax brackets from seven to three.
The federal tax code overhaul, which the Trump administration calls the first of its kind since 1986, also would eliminate many deductions used by those who don’t take the standard deduction to lower their taxable income – including deductions for state and local taxes that would disproportionately impact high-income states like Connecticut.
But the Trump plan would keep the mortgage interest deduction and the charitable donations deduction in place. Trump’s plan also would boost the tax break for child and dependent care expenses.
But the proposal is only an outline, lacking key details, including the income levels that would be subject to the pared-down tax brackets of 10 percent, 25 percent and 35 percent. White House officials say they haven’t specified which income levels would hit the higher tax brackets because that’s part of ongoing discussions with Congress.
Still, if the one-page outline becomes legislation that is implemented, it would probably affect most Connecticut taxpayers.
According to the Internal Revenue Service, there were about 1.75 million individual filers in Connecticut in 2014, the latest year for which information is available. The largest number, about 363,000, claimed adjusted gross incomes of between $25,000 and $50,000. About 121,000 filers claimed gross incomes of $200,000 or more.
IRS data also shows there were 23,686 businesses in the state that paid the 35 percent corporate tax rate last year. The tax rate for those businesses would be cut to 15 percent under the president’s plan.
Many of the 28,509 small businesses in the state who filed as “S” corporations would also get a tax break. These businesses currently pay taxes at the individual rate, which could be as high as 35 percent. Under the Trump plan, they would pay the new corporate rate of 15 percent.
Connecticut also had 833 filers who paid the estate tax last year, ranking the state the 11th highest in the number of estate tax filers. Under Trump’s plan that tax, levied at estates valued at $5.4 million or more this year, would be eliminated.
Trump’s plan also would repeal the alternative minimum tax paid by wealthy taxpayers and a 3.8 percent Medicare surtax on investment income totaling $250,000 or more.
“It’s a great plan,” President Donald Trump said. “It’s going to put people back to work.”
Congressional Democrats called the plan dead on arrival.
“After only 100 days in office, the President is pushing an unrealistic plan that would enrich himself and his family at the expense of middle- and low-income families,” said Sen. Richard Blumenthal, D-Conn. “His tax plan would provide massive tax cuts for the wealthiest Americans while increasing our nation’s deficit and prohibiting people from deducting state income taxes. Very simply: This plan would leave Connecticut taxpayers worse off.”
Rep. John Larson, D-1st District, a member of the Ways and Means Committee that would be tasked with writing the legislation to implement Trump’s proposal, said the White House did not try to negotiate with Democrats, instead leaving them in the dark.
Larson critized the plan for lacking details, saying, “It’s better than a tweet and not much more than an outline.”
He also said it “seems to follow a Trump pattern” of overpromising then delivering much less, citing the president’s embrace of a health care bill that the Congressional Budget Office determined would strip 24 million Americans of coverage.
“In (Trump’s) first 100 days, should we not have had hearings?” Larson asked, “Should we not have had legislation?”
The White House also is proposing a one-time tax “holiday” to give companies an incentive to bring several trillion dollars currently being held in other countries back into the United States, a process known as repatriation. But the Trump administration did not specify what that special, one-time tax rate would be, saying it’s part of the negotiations with Congress.
Trump’s proposal does not include many other offsets to the tax breaks, provoking criticism it would bloat the deficit.
It also raised concerns that wealthy people, including lawyers and doctors, would restructure their personal income as business income, effectively reducing their tax rate to 15 percent.
“That’s not tax reform,” Sen. Charles Schumer, D-N.Y. said on the Senate floor. “That’s just a tax giveaway to the very, very wealthy that will explode the deficit.”
The administration said in the coming weeks it will solicit more ideas on how to improve the plan. It hopes Congress would approve the tax overhaul by the end of this year, but declined to release a timeline after Trump demanded a quick House vote on a health care bill only to see it fail.