How Trump's tax plan could affect Massachusetts
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President Donald Trump on the campaign trail in 2016
President Donald Trump on Wednesday released the skeleton of his plan to revamp the federal tax code, a plan that the White House referred to as "the most significant tax reform legislation since 1986 and one of the biggest tax cuts in the American history."
Trump's plan, released Wednesday as a single page of bullet points, calls for three income tax brackets -- 10 percent, 25 percent and 35 percent -- to replace the current seven brackets. The administration did not announce the income ranges that would be associated with each bracket.
Trump "understands there are a lot of people in this country that feel like they work hard and they just cannot get ahead," National Economic Council Director Gary Cohn said Wednesday. "They are sick of turning their paychecks over to Washington and having no idea of how those dollars are spent. They are frustrated by a tax code that is so complicated they can't even do their own taxes. That's why tax reform is such a big priority to this president."
The corporate tax rate would fall from 35 percent to 15 percent under the Trump White House's plan. The plan also repeals the 3.8 percent investment surtax from the Affordable Care Act.
Gone would be the estate tax and the alternative minimum tax, and the plan would eliminate all tax deductions for individuals other than those for mortgage interest and charitable contributions, which Treasury Secretary Steven Mnuchin said represents "sweeping reform."
Mnunchin also said Trump's plan will "pay for itself with growth and with reduced -- reduction of different deductions and closing loopholes," but the nonpartisan, non-profit Committee for a Responsible Federal Budget estimated that Trump's plan "could cost $3 to $7 trillion over a decade."
"Without adequate offsets, tax reform could drive up the federal debt, harming economic growth instead of boosting it," the committee said Wednesday, though it noted that the White House did not release enough detail to provide a more specific estimate of the revenue impact of the plan.
Patrick Connolly, a tax partner at BlumShapiro in Quincy and a member of the Massachusetts Society of Certified Public Accountants, spoke with the News Service about who stands to gain and who stands to lose under the president's plan, and how it could affect Massachusetts.
SHNS: Which groups stand to benefit the most under the framework of the plan presented by the president Wednesday?
CONNOLLY: It's really hard to say because the details are just not there. I think there are certain provisions in it -- repealing the alternative minimum tax, repealing the death tax -- those areas tend to see more wealthy folks than the middle class. They do want to keep deductions for home mortgage interest and charitable contributions so that certainly could benefit a number of people, middle class and above. The doubling of the standard deduction actually might simplify the return filings for middle-class families because they may go that route rather than itemizing their deductions on their tax return. There was discussion about providing tax relief for families, but the specifics aren't there just yet. Looking at this, there is a lot there to like. But how do we get all of that passed? That's the question.
SHNS: Which groups could view the plan unfavorably, or could see negative impacts if the plan becomes law?
CONNOLLY: Given all of the recommendations, I'm not sure it negatively impacts many people because everything here I think is favorable from a tax perspective. There had been some discussion about the border tax but that's not part of these recommendations. That, the border tax, certainly would have impacts on certain people but that's not in these recommendations.
SHNS: Is there anything about the president's plan or about the demographics of Massachusetts that could lead to a different impact in Massachusetts than in other states or other regions?
CONNOLLY: The 15 percent (corporate tax) rate -- I think because so many business owners in Massachusetts are considered small business, the benefit of the 15 percent rate for those owners could be very beneficial. How you comply with that and what they will do, the devil's in the details but that could be very beneficial here. No longer being able to deduct Mass. income taxes -- at the individual level they aren't overly egregious but real estate taxes maybe tend to be a bit higher in Massachusetts than in other states -- those deductions would be eliminated under this proposal, which would affect people here.
SHNS: What are some of the issues that are not entirely clear about the plan now but that could become important or controversial aspects of the final plan?
CONNOLLY: The way I view this is that this is just the start of reform. I think there is a lot that will have to play out, so where this all ends up -- that'll be interesting, how they get there. With tax reform, you have to make up the revenue you're losing somewhere else. That's one issue that will need to be addressed. It certainly wasn't addressed yesterday. When you look at what was proposed yesterday, all in all, you can certainly view that favorably. But, how do you get there? The goal of having simplification is a good thing, and hopefully, whatever happens, that's part of it.
(Portions of this interview have been edited or condensed.)
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