Despite the lack of detail in the plan, here are the most significant changes to note:
- Tax brackets: The new plan proposes three tax brackets as opposed to seven (10 percent, 25 percent, and 35 percent). But there’s no detail on which incomes fall under each bracket. Currently, the highest tax bracket it 39 percent, so that rate would see a pretty significant deduction.
- Alternative Minimum Tax repeal: As he mentioned in his campaign, Trump wants to repeal the AMT. This tax is designed to ensure the super wealthy pay enough in taxes (without the AMT, Trump himself would’ve paid just over 3% on his 2005 tax return), but it does make things complicated for middle-income earners, too.
- Standard deductions and individual deductions: The new plan would double the standard deduction, which is currently $6,350 for single filers and $12,700 for married couples. But to make up for this cost, all individual tax deductions would be eliminated except charitable giving deductions and mortgage interest deductions (the White House says, contrary to confusion, this won’t affect 401k deductions).
- Corporate Rate Tax: The corporate tax rate would be slashed from 35 to 15 percent, a pretty huge cut.
Overall it’s not even likely that this plan will pass, but if the proposed changes confuse you, here’s a simplified breakdown of who will benefit most from the changes.
Major corporations: The corporate tax rate cut is a huge one. Currently, 15% is the lowest bracket for businesses, so this tax cut would lower taxes significantly for nearly all businesses that earn more than $50,000 a year. Of course, the more lucrative the business, the bigger the savings. For example, if a business earns over about $18 million, they are now taxed at a 35% rate schedule. The new plan would reduce that to more than half, at just 15%.
Individuals in the highest tax brackets: Similarly, since the plan proposes to drop the top tax rate from 39.6 percent to 35 percent, individuals in those brackets would see major savings. Additionally, as the New York Times points out, high-income earners would save even more because the plan wants to get rid of a 3.8% tax that’s used to fund the Affordable Care Act. That tax applies to investment income over $250,000 (for married couples).
Individuals who inherit more than $5.45 million: With the current system, you can pass on up to $5.45 million without paying an estate tax. But anything above that amount is taxed at 40%. Trump’s plan proposes to eliminate this altogether. Bloomberg crunched some numbers and estimated that Trump’s own estate would save over half a billion dollars, estimating his net worth at $3 billion.
While the rest of us would see some tax relief, it’s hard to say how much, since the plan doesn’t include any income thresholds for the new tax brackets. But it’s clear that the most significant changes are the tax cuts from the top—the wealthiest corporations and individuals.