Earlier today, Republican presidential candidate Donald Trump announced several major changes to his taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. plan, originally released in September 2015. In a speech at the Detroit Economic Club, Trump called for a top individual tax rate of 33 percent, full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. of capital investment, and a deduction for childcare costs – three tax policy proposals that were not included in the first version of his plan.
This morning, Trump called for consolidating the current seven individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. brackets into three brackets, of 12 percent, 25 percent, and 33 percent. These are the same bracket rates that were proposed in the recent House Republican tax reform blueprint, but they are significantly higher than the rates that Trump proposed last September: 10 percent, 20 percent, and 25 percent. It is likely that this change will reduce the revenue loss from Trump’s tax plan (which would have cost at least $10 trillion in its original form), although this will depend significantly on how wide the new bracket thresholds are.
Another significant policy proposal from today’s speech was Trump’s call to “allow businesses to immediately expense new business investments.” Currently, U.S. businesses are generally not allowed to deduct (or “expense”) the cost of their investments immediately; they are required to spread out the deduction over long periods of time, according to a set of depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. schedules. Trump’s proposal to allow businesses to expense all of their investments would shift his platform closer to the GOP mainstream. Indeed, during the Republican primary, Trump was one of the only Republican presidential candidates not to call for full expensing of capital investments.
Perhaps the most novel feature of Trump’s revised proposal is that it would allow parents “to fully deduct the average cost of childcare spending from their taxes.” The Trump campaign has not specified exactly how this policy would work. For instance, it is unclear whether this proposal would simply expand the dependent exemption for children, or if it would require parents to keep track of their childcare expenditures in order to deduct them (and, if so, which expenditures would qualify?).
Aside from these revisions, Trump also reiterated several of the proposals in his original tax plan. He repeated his call for a 15 percent top rate on both corporate and pass-through business income, promised to repeal the federal estate tax, and proposed changing the tax treatment of carried interest income.
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