income tax

Trump dumps 0% tax-rate proposal

By Bankrate

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When Donald J. Trump issued his original tax plan in September of last year, the then-candidate for the Republican presidential nomination promised that some Americans wouldn’t owe any tax at all.

In a speech Monday before the Detroit Economic Club, the now nominee erased that no-tax option.

Original plan had a 0% rate

Trump’s original proposal called for 4 tax brackets, ranging from 0% to 25%.

“If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax,” Trump proclaimed last year. “That removes nearly 75 million households — over 50% — from the income tax rolls.”

His new plan would put some of those folks back on the Internal Revenue Service’s radar.

Fewer brackets, higher tax rates

Trump, apparently in a sign of Republican Party conciliation and economic reality, has revised his tax plan to follow the tax rates and income brackets included in the House Republicans’ tax reform plan.

That proposal, backed by Republican budget guru and current House Speaker Paul Ryan, calls for 3 individual tax rates: 12%, 25% and 33%.

Trump’s 0% tax rate is gone.

Still, the Republican candidate told his packed house at the Detroit event that “many American workers” will find “their tax rate will be zero.” He’s basing this on a proposal for higher standard deduction amounts that was included in a GOP tax reform plan released in June.

“This, in effect, creates a larger 0 percent bracket,” the Republican tax plan says. “As a result, taxpayers who are currently in the 10-percent bracket always will pay lower taxes than under current law.”

Reaching out to parents

Trump has offered another new tax proposal that takes aim at Democratic opponent Hillary Clinton and her lead among women voters.

He wants to allow parents to fully deduct from their taxes the average costs of child care spending.

Clinton has proposed capping child care costs at 10% of a family’s income. The former secretary of state also supports a tax credit of up to $1,200 for adult family members who care for their aging parents.

Deficit question lingers

Trump’s speech to the Motor City gathering dealt with broad tax policy generalizations, as is generally the case for such talks during an election year.

He did promise, though, that “in the coming weeks, we will be offering more detail on all of these policies.”

Those details should tell us whether his new tax plan will be less costly than the nearly $10 trillion estimate that bedeviled his original proposal. Some Trump surrogates have suggested the new figure will be in the $3 trillion deficit range. Bankrate will let you know if that lower deficit amount is correct, as well as what’s in the other new Trump tax-plan specifics as they are announced.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Rich tend to stay put despite high taxes

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Opponents of higher taxes on the wealthy often invoke the fable about the disastrous killing of the goose that laid the golden eggs. Over-taxing the rich, they argue, will produce the same results metaphorically. The rich will simply move, taking their money with them.

New research, however, indicates that those opposing taxes for the wealthy are playing a bit loosey-goosey with the facts.

The study “Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data,” published in the June issue of the American Sociological Review, finds that most millionaires don’t move from state to state simply to avoid big tax bills.

Millionaires tend to stay put

The study is based on 45 million tax records from U.S. tax filers who earned $1 million or more in any year between 1999 and 2011. Using that data, researchers at Stanford University and economists at the Office of Tax Analysis at the U.S. Department of Treasury discovered that most millionaires aren’t very mobile.

“The most striking finding in our study is how little elites seem willing to move to exploit tax advantages across state lines,” Cristobal Young, an assistant professor of sociology at Stanford and lead author of the study, said in a press release. “Millionaire tax flight is occurring, but only at the margins of significance.”

Young and his fellow researchers found that in any given year, of roughly 500,000 individuals filing tax returns reporting incomes of $1 million or more, only about 12,000 millionaires moved to another state.

The researchers also note that millionaires are no more likely to live in states with low or zero income taxes, like Texas or Florida, than in high income tax states, such as New Jersey or California.

Moving is a hassle even for the rich

The annual millionaire migration rate of 2.4% actually is lower than the migration rate of the 2.9% moving rate of the general population, according to the study. In fact, the researchers found the highest rates of migration among low-income tax filers. Folks making around $10,000 a year move at a 4.5% rate.

“There is a widely held perception that elites are extremely mobile, that they are more attached to money than to place, and with money you can live anywhere you want,” said Young.

While we tend to see moving at will as one of the privileges enjoyed by the rich, such relocation comes with high social and economic costs, said Young. It’s difficult for folks at all income levels to uproot family, break away from social networks and restart in a new place.

Not so different after all

And while the rich definitely are different in many ways from the rest of us working stiffs, work is one thing most of us do share.

Young notes that most millionaires today are the working rich. Rather than living off inherited wealth, they rely on earnings from employment.

“They work as lawyers, doctors, managers and financial executives,” said Young. “They are at the peak of their careers and typically earn million-dollar incomes only for several years. People avoid potentially disruptive moves when they are performing at the very top of their game.”

Limited moves are to low-tax locales

Those opposed to taxing the rich do, however, get one thing right.

The study says that in the limited instances where the rich do relocate, they are more likely to move to a state with a lower tax rate. And the most popular destination for mobile millionaires is Florida.

Of course, that could mean that they like sunny days on the beach as much as they like low taxes. But that’s a topic for additional research.

 

Details of the President’s State of the Union Tax Proposals

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

President Barack Obama used Tuesday’s State of the Union address to announce that he will propose tax increases for higher-income individuals and provide tax relief for middle-class taxpayers. Ahead of the speech, the White House provided details of what the president plans to propose, which it characterized as simplifying the Internal Revenue Code, eliminating loopholes, and helping “middle class families get ahead and grow the economy.”

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Specific proposals on the president’s wish list include:

  • Eliminate the step-up in basis for assets that are transferred at death, treating transfers at death as realization events for capital gains tax purposes;
  • Raise the top tax rate on capital gains and dividends to 28%, which would be imposed on taxpayers with incomes over about $500,000;
  • Impose a 7-basis-point fee on the liabilities of large financial institutions to discourage “excessive borrowing”;
  • Create a $500 second-earner tax credit for families in which both spouses work (5% of the first $10,000 of the lower-earning spouse’s income; credit would phase out for couples with incomes between $120,000 and $210,000);
  • Modify various child care tax incentives, including increasing the earned income tax credit (EITC) for childless taxpayers, increasing the EITC phaseout level, making permanent EITC increases that are scheduled to expire after 2017, tripling the maximum child and dependent care credit and making the income cutoff $120,000, and eliminating child care flexible spending accounts;
  • Consolidate and expand education tax benefits, including making the American opportunity tax credit permanent and folding the lifetime learning credit into it, increase the refundable portion to $1,500, and make it available to more students; and
  • Reform retirement tax incentives, including automatically enrolling workers in IRAs, requiring employers to allow more part-time workers to participate in their retirement plans, and providing a cap of about $3.4 million in an IRA.

The White House did not provide a timeline for when legislation embodying these proposals would be introduced. Since both houses of Congress are now controlled by Republicans, any proposal by the president will face a steep uphill climb.

Article: The Tax Advisor

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