The last comprehensive revision of the Internal Revenue Code occurred in 1986, when Congress passed the Tax Reform Act of 1986. On April 26, 2017, with less than one page of writing, President Trump has summarized his Tax Reform Plan, which promises to reduce tax brackets, simplify the tax code, create millions of job, and protect a variety of deductions. Included in the plan are the following proposed changes:
- Reducing the number of tax brackets to three (at 10 percent, 25 percent, and 35 percent rates);
- Doubling the standard deduction;
- Eliminating the Alternative Minimum Tax;
- An immediate phasing out of the death tax; and
- Capping the top tax rate on capital gains at 20 percent.
With regard to personal taxes, the plan looks to eliminate "all tax deductions other than mortgage interest and charitable deductions." One feature that will negatively affect some Californians is that income tax paid to California will no longer be a federal deduction.
The plan will also make significant changes to how businesses are taxed by the federal government. The President hopes to reduce the business tax rate to 15 percent and make a one-time tax on overseas profits through a "territorial tax system." According to Treasury Secretary Steven Mnuchin, "U.S. companies would not be subject to [tax liabilities on] worldwide income," rather only that income related to U.S. business.
To read the transcript of the White House press briefing on this proposed reform, click here.
To read more about how this plan could affect Californians specifically, click here.