taxes

The Trump Tax Plan: Where’s the Beef?

The lack of details in President Trump’s just-announced tax plan raises more questions than answers, but one thing's evident: The proposal shows the hallmarks of “trickle-down economics.”

On Wednesday, April 26, President Trump released his long-awaited tax proposal … well, sort of. The one-page outline provided by the White House should not be viewed as a plan, rather we should see it as a beginning of negotiations (after all Mr. Trump has a self-proclaimed love for negotiations).

Here is some of what we know so far:

  • The plan would call for a reduction in tax brackets from the current seven to three: 10%, 25% and 30%.
  • It would eliminate most line-item deductions — including those for state and local taxes, sales taxes, gambling losses and moving expense — with the noted exceptions of the mortgage interest deduction and charitable gift deduction.
  • It would significantly raise the standard deduction, which Americans can use to reduce their taxable incomes.
  • And on a corporate level, President Trump is following through on his campaign pledge to greatly reduce corporate taxes – from 35% down to 15% — as well as offering a “one-time” opportunity for corporations to repatriate offshore cash to the United States at a 10% tax rate.

What is glaringly missing from this outline are the revenue offsets, i.e. how we would pay for all of this. Unless the plan includes specific revenue-generating items, one has to assume that this “plan” is, in essence, one giant turbo-charged trickle-down economics plan (a long favorite economic theory among Republicans).

On the personal income tax front, it is hard to argue with the need for a simpler more straightforward tax code (although I suspect the good folks at H&R Block (ticker: HRB) and Jackson Hewitt will protest loudly). Eliminating or significantly restructuring the convoluted line-item deduction mechanism and alternative minimum tax is more than needed. And in theory, the end result could be a “wash” for many as line-item deductions are eliminated in favor of a lower tax bracket. The devil will be in the details, and there aren’t any of these yet (on Thursday morning White House Budget Chief Mick Mulvaney said the vagueness of the proposal is intentional).

On the corporate side, the issues and shortsightedness are much clearer, and have a historical track record. In 2004 Congress, at the urging of then President George W. Bush, passed the repatriation tax holiday, which brought back some $312 billion into the United States. Predictably, very little of this money was utilized to create jobs, as investment or capital expenditure. Rather, it was used for share buybacks, increased and one-time dividends and generally for the benefit of shareholders.

President Trump’s proposal seems to follow a similar path and it offers flawed expectations that this time around corporations will act in the country’s best interest, as opposed to their own and their shareholders’.

Perhaps if President Trump attaches certain investment mandates or penalties for misappropriating the funds the plan could be very beneficial to our economy. But as it stands now, the premise of trickle-down economics is unlikely to have results that differ from previous engagements of this policy.

It’s impossible to give President Trump a “grade” on his tax proposal, as it isn’t much of a proposal at all yet. However, from a market and investor perspective, it is one more piece of “hope and good news” that could help keep this bull market alive and drive stocks materially higher.

About the Author

Oliver Pursche, Investment Adviser Representative

CEO, Bruderman Asset Management

Oliver Pursche is the Chief Market Strategist for Bruderman Asset Management, an SEC-registered investment advisory firm with over $1 billion in assets under management and an additional $400 million under advisement through its affiliated broker dealer, Bruderman Brothers, LLC. Pursche is a recognized authority on global affairs and investment policy, as well as a regular contributor on CNBC, Bloomberg and Fox Business. Additionally, he is a monthly contributing columnist for Forbes and Kiplinger.com, a member of the Harvard Business Review Advisory Council and a monthly participant of the NY Federal Reserve Bank Business Leaders Survey, and the author of "Immigrants: The Economic Force at our Door."

Most Popular

Where's My Refund? How to Track Your Tax Refund Status
tax refunds

Where's My Refund? How to Track Your Tax Refund Status

If you're waiting for your tax refund, the IRS has an online tool that lets you track the status of your payment.
March 2, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

Recommended

What's the Standard Deduction for 2020 vs. 2021?
Tax Breaks

What's the Standard Deduction for 2020 vs. 2021?

If you're like most Americans, taking the standard deduction on your tax return is better than claiming itemized deductions.
March 5, 2021
Claim These "Above-the-Line" Deductions on Your Tax Return (Even If You Don't Itemize)
Tax Breaks

Claim These "Above-the-Line" Deductions on Your Tax Return (Even If You Don't Itemize)

If, like most people, you claim the standard deduction instead of itemized deductions on your return, there are still many other tax deductions availa…
March 5, 2021
Taxes on Unemployment Benefits: A State-by-State Guide
state tax

Taxes on Unemployment Benefits: A State-by-State Guide

Don't be surprised by an unexpected tax bill on your unemployment benefits. Know where unemployment compensation is taxable and where it isn't.
March 3, 2021
Tax Day 2021: When's the Last Day to File Taxes?
tax deadline

Tax Day 2021: When's the Last Day to File Taxes?

Many people are wondering if Tax Day will be pushed back again this year because of the pandemic. Here's what we know so far.
February 28, 2021