‘Devil’s In The Details’ When It Comes To Trump’s Tax Reform Plan

May 15--Not much is known about President Donald Trump's tax reform plan, which remains a broad outline, with no specifics in sight. One thing experts do know, however, is that it will be good for business -- though how good remains to be seen.

"The devil is in the details," said Rob Lutts, president and chief investment officer of Cabot Wealth Management in Salem, a small business that employs 17 people.

While Trump's plan calls for a lower, 15-percent tax rate for businesses, Lutts said tax reform could take away other deductions, making it too soon to say how local businesses might be affected.

Still, a sampling of local opinions shows some people who are optimistic about the Trump approach, while others are dismayed.

Susan Weeks, co-owner of the Danvers accounting firm Vesey and Weeks, said the corporate tax breaks Trump is proposing should benefit business clients. But given the complexity of the tax code, she added, it is doubtful any changes would take place this year. The key would be to get details in time for accountants to start planning for 2018.

Salem State University's Paul McGee, a professor of accounting and finance, asked his students to consider how Trump's tax plan might impact middle-class families making between $50,000 and $100,000 a year.

The students looked at proposals such as the doubling of the standard deduction for married couples, and considered what they thought would be an increase for day care credits proposed by Ivanka Trump, the president's daughter and now a White House adviser.

Their conclusions? "About two-thirds said it would not be good for the middle class," McGee said. The other third of the class disagreed.

"There is a little bit in there for everybody," McGee said.

Congressman Seth Moulton, D-Salem, is not so optimistic, saying the plan, with its tax breaks for corporations and the wealthy, is "terrible."

"It's terrible for our economy. It's terrible for the middle class," Moulton said. "It even breaks Trump's own promises to look out for working people rather than looking out for the rich."

Moulton notes that the economy did well under former President Bill Clinton, who managed to reduce the size of the federal deficit. "He did that by making the wealthy pay their fair share," Moulton said.

Many of his constituents are still hurting in this economy, Moulton said, and what they don't need is a tax plan that is set on boosting corporate profits. "There is a very, very small slice of America that will do well under President Trump's tax plan -- including President Trump," he said.

The sad thing, he said, is that there are Democrats and Republicans who want to work together on tax reform, reduce the deficit and make small businesses more competitive. That means closing tax loopholes that large corporations use to avoid paying taxes, something that small business owners can't do.

"This is not a reform," Moulton said. "This is a terrible idea."

What's in there?

Trump's tax reform plan is being billed as one of the biggest tax cuts in American history, according to Trump's chief economic adviser, Gary Cohn, in a post on the White House blog.

The plan would consolidate seven tax brackets to three: 10 percent, 25 percent and 35 percent. The top tax rate now is nearly 40 percent. The impact of this cannot be calculated, however, since the administration has not indicated what the income ranges would be for each bracket.

Trump also wants to double the standard deduction. This means a married couple would not have to pay taxes on the first $24,000 they earn. This would lead to a less complicated tax return, Cohn said, as fewer couples would need to itemize deductions.

The plan also calls for repeal of the Alternative Minimum Tax, a mechanism designed to prevent wealthy taxpayers from using loopholes to avoid paying taxes. But it also requires taxpayers to do their taxes twice, and eliminating it would make tax preparation less complicated, Cohn said.

The top tax rate on capital gains and dividends would be returned to 20 percent with the repeal of a 3.8 percent tax to pay for Obamacare, something Cohn said has hit investment income and small-business owners.

Trump's plan also repeals the estate tax, an extra tax that applies only to inherited estates larger than $5.5 million for individuals and $11 million for couples. Cohn contends that it hurts small business owners and farmers, something that critics dispute.

Tax breaks for home ownership (the mortgage interest deduction), charitable giving and retirement savings would be protected, but the Trump plan calls for other tax breaks to go away. That could include many deductions that taxpayers rely on, Salem's McGee notes, such as the deduction for state income taxes and property taxes.

The idea of Trump's tax reforms seems to be that a majority of the tax breaks would go to corporations, McGee said, on the theory that the money they save on taxes would be reinvested in a way that stimulates the economy, by adding jobs, investing in equipment or offering bigger dividends.

Just passing through

McGee said the biggest change would be that the top business tax rate would drop from 35 percent to 15 percent, and so-called pass-through entities could take advantage of that business rate.

What happens now is that a pass-through, such as an S corporation, passes business income to shareholders or owners, who then report it on their personal tax returns, paying at their individual rates. This avoids the double taxation inherent in most corporations, whose profit is taxed at the business rate when it is earned and again when shareholders receive dividends and pay their personal income taxes. It's a tax strategy that many small businesses use.

Under Trump's plan, owners of pass-through entities could save money by paying at the lower, 15 percent business rate, rather than at their personal income tax rate, which could be much higher.

Still, the lack of specifics in Trump's plan leaves most people still wondering.

"There's been so little detail about it, it's hard to know what it's going to do or how it's going to do it," said David Gravel, a Peabody city councilor and small-business owner.

Gravel is president and CEO of GraVoc, a technology consulting firm that he owns with his wife, employing 45 people at Centennial Park. Between state and federal taxes, Gravel estimates his business pays at a tax rate that verges on 40 percent.

"Any form of relief is great," said Gravel, whose business is not a pass-through.

Robert Bradford, president of the North Shore Chamber of Commerce, says the Trump tax plan is "almost at the theory level right now." But he likes the general idea that businesses could pay less.

"Anytime you can put money in people's pockets," he said, "whether its corporations or individuals ... let people spend it the way they want."

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