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The Good, the Bad and the Ugly in the Trump Tax Plan

The Trump tax plan is a decidedly mixed bag. Let’s break down the good, the bad, and the ugly.

What’s good about the Trump tax plan: Lower corporate taxes

The lower corporate tax rate will help make the American business environment globally competitive again. For far too long, the United States has had both the highest nominal rates and one of the highest effective corporate rates in the world, which has been a key factor in driving business overseas.

A top corporate rate of 20 percent will go a long way toward achieving President Trump’s primary goal of bringing back American jobs from foreign shores.

Collapsing seven brackets down to four brackets is also a smart move. Increased simplicity is always a good thing, and this promises to be the simplest tax code since 1986. That may annoy some professional tax preparers, but it’s good news for ordinary Americans who shouldn’t have to get an accounting degree to be able to do their taxes.

Increasing the standard deduction to $12,000 for single filers and $24,000 for joint filers will also be a boon to the middle class.

What’s bad about the Trump tax plan: Capping the home mortgage deduction

Who thought it was a good idea to raise the lowest rate from 10 percent to 12 percent? Granted, much of that rate increase is offset by the increased standard deduction, but given that Trump is trying to downplay the perception that he’s only cutting taxes for the rich, it doesn’t help his case to raise the rates on the poorest taxpayers.

The deduction offset should have been minimized in order to keep the rate at 10 percent

Capping the home mortgage deduction and the deductibility of state income taxes will also hit the middle class right between the eyes. These also seem like punitive measures to voters living in blue states, where state taxes and housing prices are considerably higher than in many red states.

A $500,000 home may seem like a luxury for someone in, say, Oklahoma or Mississippi, but try finding a house for a family of four in Southern California or New York City for less than $500,000. With a stroke of a pen, this elimination of a deduction would eliminate a great deal of wealth and equity for homeowners who are struggling to get by.

What’s ugly about the Trump tax plan: A secret six percent surcharge raising taxes to 45.6 percent

We’ve already written about the misguided unwillingness to lower the top rate of 39.6 percent for people making over a million dollars a year.

But what’s become apparent since the plan has been released is the fact that there is a new, secret 45.6 percent bracket in the plan. This comes in the form of a 6 percent “surcharge” on the next $200,000 that earners make above a million.

This is an element of the plan that has largely flown under the radar, and it was described by a spokesman for the House Ways and Means Committee as a “phase-out of a tax benefit” for high income individuals rather than a direct surcharge.

But weasel words don’t explain away the fact that it’s a de facto tax increase that raises the highest tax rate to levels not seen since before Reagan.

None of this has the force of law – at least not yet –and the entire proposal is merely a starting point for discussion.

But at first glance, while there is much good in lowering the corporate income tax, there an awful lot of bad and ugly. Hopefully the final bill will correct the flaws in that current ratio.

(Flanked by Speaker of the House Paul Ryan and House Ways and Means Committee chairman Rep. Kevin Brady, R-Texas, President Donald Trump speaks about tax reform legislation during a meeting with members of the House Ways and Means Committee in the Cabinet Room at the White House on November 2, 2017. On Thursday, Republican lawmakers unveiled their plans for a massive rewrite of the U.S. tax code. Photo by Drew Angerer/Getty Images.)

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