Potential Changes to Individual and Corporate Tax under President Trump
February 2017

Approximately 1 minute reading time.  On Monday, January 23rd, President Trump said “We are going to be cutting taxes massively for both the middle class and for companies.” With Republican control of the White House and Congress, the potential to see such cuts put into effect is greater than it has been for many years. But what kind of cuts will Trump advocate for? According to his platform, his important proposed reforms include:

• Reduce individual income tax brackets from seven to three with a maximum rate of 33%;
• Reduction of the business tax rate to 15%; and
• Repeal of the estate tax, the alternative minimum tax (an additional income tax for certain individuals and businesses), and the 3.8% tax on investment income established during the passage of the ACA.

Most significantly for real estate professionals, Trump has proposed that the tax rate for pass-through business income, which has long been reported as individual income, be brought to 15% as well, in line with the general corporate rate and superseding the individual rate. This means that income associated with real estate used under Schedule C sole proprietorships or Schedule E rental real estate could be taxed far less than the individual rate if his proposals become law.
Passage of any of these measures is not guaranteed. Although the Republican majority could push these reforms easily through the House, the composition of the Senate is not as favorable. With 52 Republican senators to 48 Democratic senators, the filibuster, a procedural motion to block legislation which requires 60 senators to overcome it, is still an option. While a budget reconciliation bill would allow provisions related to budgeting and funding to pass with only a simple majority, the process would be relatively lengthy and would not give Republicans much margin for defections.
Of these areas of reform, corporate taxation is the likeliest to see a change; Chuck Schumer has indicated willingness to compromise with Republicans if the revenue anticipated from repatriation is put towards U.S. infrastructure programs. This measure as well as the other changes to tax rates will require squaring between the Trump plan and the differing House plans. As for the tax repeals, while Republican support has lined up behind these measures, there is marked Democratic resistance to the measures, particularly estate tax repeal.

    - Charles F. Schultz, Esq.
       Partner, FGMK