Six ways Trump could hit the rich with tax plan

President Trump will have to make significant changes to his previous reform proposals to achieve his goal of providing no tax cuts for the rich.

The president recently told a bipartisan group of House members that the wealthy “will not be gaining at all” from his plan. Foregoing a tax cut for the rich could help get Democrats on board and limit the bill’s overall cost. 

But previous tax plans from the White House and congressional Republicans would have disproportionately helped those at the top income brackets, according to independent analysts, so hewing to Trump’s goal could require some major changes.

Here are six ways that Republicans could revise their tax plans to prevent the rich from getting a windfall.

Don’t lower the top individual tax rate. 

The tax plan the White House released in April called for lowering the top individual income tax rate from 39.6 percent to 35 percent. The plan House Republicans released last year would lower the top rate to 33 percent.

For the 2017 tax year, the top individual rate applies for income over $418,400 for individuals and for income over $470,700 for married couples.

Treasury Secretary Steven Mnuchin has said that any reduction in rates for high earners should be offset by eliminating deductions. But not reducing rates in the first place could avoid that tradeoff altogether.

Curb the charitable and mortgage deductions.

The White House and congressional Republicans have said they intend to eliminate many deductions and tax breaks but keep those for mortgage interest and charitable giving.

Those two itemized deductions are among the most used preferences in the tax code and have in the past been considered untouchable. But Republicans intend to reduce the number of people who would claim the deductions, since they plan to significantly increase the size of the standard deduction.

A larger standard deduction would mean that those at the top would likely be those left continuing to itemize. As a result, placing new limits on the deductions would mostly impact wealthier taxpayers.

Don’t cut capital gains taxes.

Long-term capital gains and certain dividends are taxed at lower rates than ordinary income. Republicans generally support cutting capital gains rates further as a way to encourage savings and investment.

But high-income households tend to get a greater percentage of their income from capital gains than lower-income households. Some on the left would like to see capital gains and ordinary income taxed at the same rates.

One specific tax on capital gains that has gotten attention is ObamaCare’s 3.8-percent surtax on net investment income, which applies to single people making more than $200,000 per year and married couples making more than $250,000 per year.

Repeal of the tax was included in the White House’s April plan But Democrats criticized Republicans when they were considering eliminating the tax as part of ObamaCare repeal, and the health care measure from Sens. Lindsey Graham (R-S.C.) and Bill Cassidy (R-La.) doesn’t touch it. 

Don’t provide a special tax rate for pass-through businesses.  

Most businesses, ranging from small businesses to hedge funds, are not taxed through the corporate tax system. Instead, they are “pass throughs” and have their income taxed through the individual system on their owners’ returns.

Republicans have made it a high priority to provide a lower tax rate for pass-throughs, with Trump seeking to get that rate down to 15 percent. The potential problem is that the bulk of pass-through business income goes to people at the top of the income scale.

Additionally, Democrats and some tax experts have expressed concerns that wealthy individuals would exploit a lower pass-through rate by reclassifying their salaried income as business income. Mnuchin has said that policymakers would put rules in place to prevent tax avoidance. 

Keep the alternative minimum tax (AMT).

Both the White House and congressional Republicans have proposed repealing the AMT, a separate tax system that was designed to prevent wealthy people from avoiding taxes. Some Democrats have also supported repealing the AMT in the past.

Opponents of the tax argue that it increases complexity in the tax code and has ensnared more than just the wealthiest taxpayers.

But the AMT has helped to prevent wealthy individuals from paying very little in taxes — including Trump himself.

Trump’s 2005 federal tax return, which was leaked to journalist David Cay Johnston and was featured on “The Rachel Maddow Show” in March, showed that the president that year paid about $5 million in regular income taxes and about $31 million because of the AMT.

Keep the estate tax.

Republicans have long opposed the estate tax, which they frequently refer to as the “death tax.” Trump attacked Hillary Clinton’s plans to increase the tax during the presidential campaign, and he called for the tax’s repeal in a recent speech in North Dakota. 

GOP lawmakers and business groups argue that the tax makes it harder for small business owners and family farmers to pass on their businesses to subsequent generations. 

But the estate tax is a levy that is specifically targeted at the wealthy. For 2017, the tax only applies to estates worth more than $5.49 million for individuals and $10.98 million for married couples. Amounts exceeding those thresholds are subject to a 40 percent tax.

Senate Democrats have specifically attacked Trump for his calls to repeal the estate tax and have disputed the argument that the tax hurts family farms.