What Will This Plan Mean For Your Tax Bracket?
Business Insider’s Bob Bryan reports that Steve Bannon is pushing the Trump Administration to increase taxes for the highest-income Americans. With the Administration promising the “biggest tax cut in history,” those at the top might be sensing some mixed signals. The confusion is coming from a dispute among President Trump’s advisors, and understanding the details is critical for wealthy Americans to protect their assets and engage in meaningful tax planning.
Why does Bannon want to raise taxes?
Although Treasury Secretary Steven Mnuchin and Trump Administration economic adviser Gary Cohn have promised a tax cut for every American, in order to generate the necessary political consensus to pass a tax cut the Administration will probably need to have a plan to replace the expected revenues from current tax rates. Bannon’s plan is to finance the tax cut for most Americans by increasing the tax rates (from 39.5% to somewhere in the 40s) for the top tax bracket, i.e. individuals reporting $418,400 or more in annual income, and couples reporting $ 470,700 or more annually.
Is the Administration likely to adopt Bannon’s idea?
There are a variety of factors influencing the Trump Administration at the moment. Some of the most important supporting the Bannon plan include:
- Popular Opinion
A recent poll conducted by Morning Consult and Politico indicated that in May of 2017, 62% of Americans believed “upper-income people” didn’t pay their fair share of taxes. Although ‘upper-income people’ isn’t specific to the top tax bracket, “the top 1%” isn’t usually a sympathetic political group. The Administration’s approval rating is currently low, so being seen to ‘attack’ a politically unpopular group could be to its advantage.
- Time Pressure
Gary Cohn, one of President Trump’s closest economic advisors, is reportedly indicating that if the tax cut doesn’t pass this year, the opportunity will be lost as the 2018 midterm elections approach and require Congressmen to cater to their donors. In the hurry to find a solution, the Administration may be more willing to sacrifice those in the top tax bracket in order to achieve its overall goal.
- Corporate Rates
In addition to cutting individual rates, the Administration has promised to cut corporate tax rates from 35% to 15%. This additional tax reduction adds pressure to those trying to find replacement revenues, which may make raising the highest tax bracket more appealing.
On the other hand, raising tax rates is generally an unpopular notion among conservatives, and large donors are unlikely to support the Bannon plan. Additional factors pushing back on this tax hike include:
- Financial Dissenters
Not everyone within the conservative wing agrees that tax cuts must be “revenue-neutral,” or paid for by corresponding increased revenues elsewhere, and the Trump Administration hasn’t yet committed one way or the other. It’s possible the Administration will simply decide not to replace some or all of the revenues lost to the tax cut.
- Plan Longevity
There are also indications that President Trump may be looking for ways to extend the proposed tax cuts beyond the typical 10-year window to at least 15 years. If the Administration is able to engineer such a plan, many budgetary considerations may have to be adjusted.
President Trump has prided himself on being unpredictable, but unfortunately in this case that unpredictability is making it difficult for wealthy Americans to manage their assets. If the Bannon plan is implemented, it could mean a several percent increase in the top tax bracket. Our attorneys are experienced experts in managing financial risk and uncertainty, so if you need help planning for the future contact us today to schedule a consultation!
Posted in: Tax Planning