Should Donald Trump win a second term in the Presidency there could be significant changes to the tax code.
Donald Trump hasn’t laid out a fully realized tax proposal in the same way that Joe Biden has but he has outlined some of the things he would do.
One of the things that Donald Trump has already done is unilaterally implemented a payroll tax deferral as an answer to the financial repercussions of Covid-19. It’s currently deferred, which means that the money would have to be paid back in 2021, but there are rumors that he would waive that entirely.
There have been additional rumors that Donald Trump is thinking about eliminating payroll taxes completely, which would put Social Security and Medicare in difficult positions as they are already underfunded. Unless you subscribe to Modern Monetary Theory (MMT) and the idea of the government’s infinity bucket, that’s probably a bad idea.
The second thing Donald Trump would hope to do is modify the capital gains tax or index them to inflation. The idea being that the cost of doing business would decrease overall and to encourage investment.
He has also proposed that the US indexes long term capital gains to inflation as well. David walks through a practical example of what this would mean for the average investor. Should this policy be implemented it would certainly have a positive impact on economic activity and investment in small businesses.
The third thing that Donald Trump is considering is a reduction in taxes on the middle class. The current tax brackets are scheduled to expire in 2026 and Donald Trump is looking at a 10% tax cut for middle Americans, although the exact details aren’t known at this point.
This particular policy could be interesting if implemented, but it would require the Republicans to have control of the House and the Senate to make the tax cut permanent.
The fourth thing the President is looking to do is create tax credits for American businesses. He wants people to buy more American products so these tax credits are focused on making American businesses more competitive, particularly in the pharmaceutical and robotics industries.
He’s also looking to expand the opportunity zones created under the Tax Cut and Jobs act.
Keep in mind that none of these changes have been committed to or put down on paper, they’ve just been some thoughts and ideas discussed so far. David quickly recaps the five tax proposals coming out of the Trump administration.
Once we know who our next President is going to be, we’ll have a little more clarity about what to expect in terms of taxes for the next four years.