President Trump's April 2017 Tax Reform Proposal.

President Trump proposed a new tax plan in the hopes corporate and personal tax cuts would induce national economic growth, while also bringing corporations and jobs back into the U.S.

Personal Income Tax:

   The President’s proposed tax plan would reduce the number of tax brackets from seven to three. The plan is proposing a top tax rate of 35% (currently at 39.6%), 25%, and the lowest tax bracket of 10%. In addition, the proposal intends to double the standard deduction for married couples to $24,000.00.

   However, these tax cuts will be coming at a price. The plan hopes to compensate any loss revenue resulting from the tax rate reductions by eliminating a majority of personal itemized deductions; keeping the mortgage interest relief and tax deduction for charitable donations and investments, while also eliminating the estate tax and the alternative minimum tax rate structure.

Corporate Tax:

   President Trump’s new tax plan proposes to reduce the top marginal tax rate from 35% - 15%, meaning the U.S. corporate tax rate would go from among one the highest in the developed world, to one of the lowest. Additionally, a low corporate tax rate would discourage multi-national corporations from shifting profits to low tax countries, and could help stimulate new investments.

Combining the proposed 15% corporate tax rate, along with the proposed top individual tax rate of 35% could create a powerful incentive for wealthy individuals to put away a large portion of their assets in a corporation. They would pay a 15% tax on profits versus 20% on capital gains and dividends or 37% on interest, rents, or royalties. If they hold their corporation until they die, they could transfer their assets tax-free to heirs, who could continue to accumulate lightly-taxed profits by simply keeping the assets in the corporation.

Under Trump’s campaign proposal, the 15% rate would also apply to partnerships and sole proprietorships, which would create additional avenues for avoidance without the inconvenience of incorporating. 

By tying a 15% corporate rate to individual income tax reforms, he could limit corporate tax avoidance. It could reduce incentives for multinational tax avoidance and as well as disparities in taxation across firms.