Princeton, N.J., [November 22, 2024] – Since launching his latest run for the White House, candidate and now-president-elect Donald Trump has been pledging to lower the tax burden for middle-class Americans while also putting forth the promise of a more-favorable corporate tax-rate environment for business.
From doing away with taxes on tips and capping credit card interest, to lifting the cap on state and local taxes (SALT) and increasing the child-tax credit, there are sure to be a number of impactful changes on the tax landscape for hard-working middle-class Americans – as well as their corporate counterparts. But what are the specifics of this bold overhaul to the tax code? And how will they reshape middle-class households as well as the cost of doing business in the United States?
In the following commentary, which may be cited and/or quoted through direct attribution, Withum Tax Leader Lynne Mucenski-Keck offers an analysis on how this confluence of changes will affect the middle class in particular. In addition, she is also available to discuss the expiration of key provisions in the 2022 Inflation Reduction Act, the return of the SALT deduction cap and the potential impact of new tariffs. Mucenski-Keck may be reached directly at lmucenskikeck@withum.com.
KEY ASPECTS OF THE TRUMP TAX PLAN
“Continuation or permanent implementation of the 2017 tax cuts,” says Mucenski-Keck, “has the potential to:
- Lower Marginal Tax Rates: Middle-class taxpayers will continue to benefit from the lower tax brackets, avoiding scheduled increases in 2026.
- SALT Cap Repeal: The proposal removes the $10,000 cap on state and local tax (SALT) deductions, which would benefit taxpayers in high-income tax states.
- 199A Deduction for Sole Proprietors: Business owners can continue using the 20% deduction for qualified business income, allowing them to reduce taxable income.
- Corporate Tax Rate Reduction: The corporate tax rate would be reduced from 21% to 20%, with a further reduction to 15% for U.S.-based manufacturing companies.
- Lifetime Estate Tax Exemption: The current $13.61 million exemption would be made permanent, preventing the scheduled decrease in 2026.
- Alternative Minimum Tax (AMT): The higher AMT exemptions from the Tax Cuts and Jobs Act (TCJA) would remain in place, preventing a return to pre-TCJA levels.”
Mucenski-Keck also notes, the following are “additional components to watch for from the Trump Tax Plan:
- Middle-Class Incentives: Includes eliminating taxes on Social Security benefits and tips, expanding the child tax credit, and introducing a federal tax credit for first-time homebuyers.
- Tariff Policies and Economic Impact: The tax plan includes new tariffs, including a baseline 10%-20% tariff on imports, which could have significant implications for after-tax income, particularly for lower-income households.
- Exemption for Overtime Pay and Social Security Benefits: Proposals to exempt overtime pay and Social Security benefits from taxation could add significantly to the federal deficit, potentially up to $4.5 trillion.
- Corporate Tax Incentives: A reduction in the corporate tax rate for U.S. manufacturing could stimulate investment and bolster domestic production.
- Impact on Global Trade: The proposed tariffs, especially on Chinese goods, could disrupt global trade relations, with potential retaliation from foreign governments.
- Growth in the Federal Deficit: The tax cuts and tariffs combined are expected to increase the federal deficit by $4.6 trillion over 10 years, with some estimates as high as $6.55 trillion.”
About Lynn Mucenski-Keck
Lynn Mucenski-Keck is a tax principal with over two decades of experience in the accounting profession, currently serving as the National Lead on Federal Tax Policy at Withum. Her extensive expertise in federal, domestic and international-tax planning enables her to develop strategic optimization approaches that maximize cash flow for businesses.
Withum, a nationally recognized CPA and advisory firm with 23 offices and annual revenue of $578M, is a top-ranking public accounting firm providing advisory, tax and audit services to businesses and individuals on a local-to-global scale. Established in 1974 and headquartered in Princeton, N.J., Withum has a presence in major financial centers across the country. Withum is an independent member of HLB, the global advisory and accounting network.