Inauguration Day has come and gone, and the 45th President of the United States, Donald Trump, has officially taken office. Throughout his campaign, he made many claims about what he would do if elected; one notable claim being his plan to lower taxes. Now that his plan has taken full shape, it seems that President Trump’s plan does not align as closely as one might think with the GOP’s plan. The GOP’s plan has largely been outlined by Republican leader Kevin Brady, Chairman of the House Ways and Means Committee. Below is a brief synopsis of the differences between Trump and Brady’s plans and what each could spell out for taxpayers.

Tax Brackets

While both Trump and Brady would look to decrease the number of brackets from seven to three, at 12%, 25% and 33% respectively, they differ in the income rates that would align with each bracket. Brady’s rates would align with current rates and brackets, meaning the only increase in taxes would be for those who previously fell under the 10% tax bracket, as they would see their rate rise to 12%. Under Trump’s plan, however, not only would those in the 10% bracket rise to 12%, but those in the middle class could see their rate rise to 33% as well, at least for those making more than $112,500 annually (for singles) , whereas under current law the 33% rate did not kick in until income reached $191,651 (for singles).

Gains/Dividends Rates

Trump would like to maintain the current capital gains and dividend rates, 0%, 15% and 20%, and simply group them with his three desired tax brackets. But, because Trump’s income rates for each tax bracket would mean a tax increase for certain middle classers, aligning the gains and dividends rates would also mean an increase from 15% to 20% for many in that bracket. Where Brady’s differs is that he would apply his tax rates, 12%, 25% and 33%, to gains and dividends rates, but allow taxpayers to deduct 50% of their capital gains and dividends and deduct 50% for interest income. In essence, under Brady’s tax plan, all taxpayers would see a decrease in their interest/capital gains/dividends rates, which would not be the case under Trump’s.

Itemized Deductions

Brady’s plan would look to eliminate all itemized deductions other than charitable contributions and mortgage interest, whereas Trump would simply cap all deductions at $100,000 if single and $200,000 if married filing jointly. While neither plan presents an issue for lower and middle classes, some upper classers may take issue with Trump’s limiting deductions, whereas many states and lobbyists may take issue with Brady’s elimination of certain deductions entirely.

Standard Deductions/Personal Exemptions

While both Trump and Brady would seek to increase the standard deduction, Brady would increase the current deduction from $6,300 to $12,000 (if single), whereas Trump would jump the increase up to $15,000. Both men’s plans would also eliminate personal exemptions. Because this could be a problem for families, Trump would attempt to lessen the blow by adding some child care incentives (although you have to pay for child care to get the incentive), whereas Brady would just increase the child tax credit from $1000 to $1,500.

Trump and Brady have outlined many other aspects of their respective tax plans, including eliminating estate taxes and lowering business tax rates, most of which have slight variations as well. And although President Trump has signed many executive orders in his first weeks in office, it does not appear that immediate tax reform is at the very top of his ticket. It does seem that the President and his party have some discussions ahead of them before presenting a finalized and more unified tax plan, and taxpayers will have to wait and see what the new administration unfolds.

If you have any questions about how the proposed tax plan may affect you or your tax return, please contacting me or your representative at Brammer & Yeend Certified Public Accountants with any questions.