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White House Proposes Slashing Tax Rates for Individuals and Businesses
- chollida1 9y agoNot an American but this is interesting.... > The estate tax and the alternative minimum tax, which Mr. Trump has railed against for years, would be repealed under his plan. The AMT is one of the largest issues for people calling their stock options on non liquid companies. > Mr. Mnuchin offered few specifics about the blueprint, other than confirming that its centerpiece will be a 15 percent business tax rate This is also very interesting, and I think, its the core of Trump's tax plan. Instead of giving corporations a tax holiday to bring back offshore money, just lower the tax rate to create a permanent tax holiday. If the numbers are to be believed ( 250 Billion for Apple alone) then this could add alot of money to the US economy over the next few years. Look for a wave of US company to US company acquisitions to spring up if this comes to fruition. Event driven hedge funds are going to have a bonanza with this! It might even be enough to make the economy jump going into the next election cycle.
- creaghpatr 9y ago>The AMT is one of the largest issues for people calling their stock options on non liquid companies. This cannot be stated loudly enough.
- pdelbarba 9y agoCan you elaborate?
- mastax 9y agoDonald Trump owns a large, illiquid, private company. The AMT is one of the few taxes Donald has had to pay since he wrote-down a billion dollar loss in the 90s. That's all I know.
- creaghpatr 9y agoIf a company (startup or otherwise) is private, then stock options holders can't liquidate their shares. However, they are still required to pay taxes on the capital gains when they exercise, which can be huge if the company has grown exponentially. Not only do you have to take the risk of the stock/company crashing and burning but you have to pay in advance the taxes on the "gains" which you can't actually cash out. It's a trap, only thing you can do is stay at your company until liquidity occurs for shareholders.
- karmelapple 9y agoI don't think I fully comprehend - do stock options holders need to pay tax even if they have not added actual money to their bank account? Why would someone have to pay in advance taxes on a gain that has not actually happened? If I don't have the money in my bank account yet, how can I pay this huge amount of gains tax even?
- maxerickson 9y agoThey exercise the options.
- antognini 9y ago> Do stock options holders need to pay tax even if they have not added actual money to their bank account? Yes. The options are converted into shares, which is considered a taxable event by the IRS. Ordinarily this isn't a problem because you can sell some fraction of the stock that you gained to pay for the taxes. But if the company is not public, you have no easy way to sell the shares. > If I don't have the money in my bank account yet, how can I pay this huge amount of gains tax even? That's exactly the problem. Many employees at unicorn startups are stuck in "golden handcuffs." If they leave, they oftentimes can't exercise their options due to the taxes, in which case they lose them. This forces them to stay in the hopes that one day the company will go public and they can exercise their options.
- derekp7 9y agoJust to make this clear (correct me if I'm wrong)... If you buy stock at market value, and it increases in value over time, you only pay tax when you sell it. But if you exercise a stock option (in which you purchase stock for a [typically] lower price than current value), the difference in value is considered the same as if you received any other non-monetary income (i.e, that difference in value is treated the same as a stock grant), in which you would have to pay tax in the current year. Did that about sum it up?
- maxerickson 9y agoThere is a tax holiday in addition to the lower corporate rate. The plan would include a special one-time tax to entice companies to repatriate cash that they are parking overseas.
- return0 9y agoWhy would apple repatriate their foreign assets (other than paying dividends)? They can borrow anything they need already.
- protomyth 9y agoBloomberg's article says "It also imposes a one-time tax on about $2.6 trillion in earnings that U.S. companies have parked overseas." - So, I am a bit lost also on this plan getting Apple to repatriate. https://www.bloomberg.com/news/articles/2017-04-26/white-house-unveils-trump-s-opening-bid-for-biggest-tax-cut https://www.bloomberg.com/news/articles/2017-04-26/white-hou...
- bpodgursky 9y agoSeriously. Nobody who hasn't gone through the ISO+AMT hell could possibly internalize how Kafkaesque and insane it is.
- tmaly 9y agoAMT is also a huge issue for parts of the middle class. It was originally designed to target upper class tax payers that would use loop holes. The problem is that it was never indexed for inflation, so now parts of the middle class suffer from the AMT
- mrfusion 9y agoI can't tell if the 15% applies to LLCs. Anyone know? Is it worth becoming an s corp otherwise? Would you still have the self employment tax?
- chriogenix 9y agoLLCs are passthrough entities so you pay what your personal rate. You still pay self employment tax however this might spur some to change their structure to benefit from new tax proposal Edit: there is also a proposal to change how partnerships and pass through entities are to be taxed.
- iamacynic 9y ago> LLCs are passthrough entities they can be, but a lot aren't.
- chriogenix 9y agoThey can elect to be taxed as a c Corp but I would think the vast majority are taxed as a corps or as partnerships.
- pravda 9y agoSelf employment tax = Social security tax. And I don't think it is going away. It's a regressive tax, the most beloved tax.
- dzlobin 9y agoThe proposal seems to state that pass-through entities will be subject to the 15% tax rate as well. From what I've read so far that would seem to mean that all business income from one's LLC would be taxed at 15%, and there wouldn't be any personal income tax to pay on top of that.
- tptacek 9y agoThat seems improbable, because LLC owners usually recognize all of their income as pass-through distributions; this would be akin to a capped 15% tax on all wealthy people. The reason you can propose drastically cutting the corporate tax is that it's a tax on money that is again taxed as income when it reaches households. The whole point of an LLC is not to do that. LLCs that retain lots of income in the corporation indefinitely can elect corporate taxation, to which the proposed reduced rate would presumably apply. But when the LLC distributes that money back to its members, it is again taxed as income. In any case, that may be the basis for this proposal applying to LLCs.
- mrfusion 9y agoThey always mention how the inheritance tax hurts family farms...
- maxerickson 9y agoThe current exemption is more than $5 million. People saying that are full of shit. Sure, someone inheriting a $6 million plot of land will owe taxes on $600,000 of income. I wonder if they could secure a loan somehow?
- protomyth 9y ago> The current exemption is more than $5 million. People saying that are full of shit. Have you looked at land, livestock, infrastructure, and equipment costs they tax? People saying that are not "full of shit" and an unexpected death can ruin not only the farming family but the folks they hire.
- maxerickson 9y agoAn enterprise valued at more than $5 million, with lots of employees, is not a "family farm", at least not in the traditional sense. I totally agree that a tax on inheritances above $5 million will tend to impact family owned businesses worth $5 million though.
- protomyth 9y agoActually, in North Dakota it is a family farm since we specifically outlaw corporate farms. $5 million when the combine (or some tractors if renting the combines) is a $1 million plus some storage bins and the per acre cost of farmland is not a big farm. So, in the traditional sense, farming is really easy to tax infrastructure activity. That is why that tax is so hated. Farms are damn expensive.
- maxerickson 9y agoI'm pretty sure other millionaires hate taxes too.
- FrankenPC 9y agoHow are we going to pay for the great wall of Mexico again? No, I don't believe Mexico will pay for it...with cash I mean.
- tptacek 9y agoThis is a purely political story, though it might look like an important policy or news story. It isn't. Every administration proposes a tax plan. But, of course, tax policy is set by Congress. The President is (usually) the ostensible leader of the party, and this President's party controls both houses of Congress, but by both rule and statute they'll need a filibuster-proof majority to pass most of these policies --- and, because the "popular" parts of this proposal will balloon the deficit, they probably won't get unanimous support from their own party. This is all academic anyways. It seems somewhat traditional for the administration to propose a fairytale tax plan, and traditional for that proposal not to have much impact on policy.
- pbreit 9y agoExcept, the AMT potentially affects many here directly and significantly. And the repatriation holiday potentially affects some of the big tech companies directly and significantly.
- tptacek 9y agoWithout offsets far more unpopular than the AMT, an outright repeal of the AMT would add trillions of dollars to the deficit. They'll be attempting to do that against a headwind of stories explaining that the repeal of the AMT would have cut Trump's own 2005 taxes (a year we know something about) by 85%. I'm not saying AMT reform isn't going to happen. Any of these things --- well, not a 15% cap on LLC pass-through income taxes --- could happen. The point is that this document isn't the harbinger of those things happening.
- TAForObvReasons 9y ago> by both rule and statute they'll need a filibuster-proof majority to pass most of these policies Couldn't the republicans use reconciliation (in which only a simple majority vote is needed) to push tax reform?
- tptacek 9y agoNo. By statute, you can't use reconciliation to pass a bill that raises the deficit 10 years out. It's not even a Senate rule they can "go nuclear" on: it's a law.
- ep103 9y agoRepealing the estate tax? The tax instituted by our founding fathers, specifically as a safeguard against the creation of an aristocratic class? A tax that ONLY affects people with more than 5 million at time of death? For shame.
- fr0sty 9y agohttps://en.wikipedia.org/wiki/Estate_tax_in_the_United_States#History https://en.wikipedia.org/wiki/Estate_tax_in_the_United_State... According to the IRS, a temporary stamp tax in 1797 applied a tax of varying size depending on the size of the bequest, ranging from 25 cents for a bequest between $50–$100, to 1 dollar for each $500. The tax was repealed in 1802. In the 19th century, the Revenue Act of 1862 and the War Revenue Act of 1898 also imposed rates, but were each repealed shortly thereafter. The modern estate tax was enacted in 1916.
- ep103 9y agoThe founding fathers enabled the tax. It was re-instated and repealed into and through the gilded age. It was finally re-enacted at the beginning of the 20th century, and has remained in place since.
- fr0sty 9y ago> The founding fathers enabled the tax. They repealed the tax 5 years later. Also, it was $1 per $500 (0.2%). > It was re-instated as part of the Tax act of 1862 to help fund the Civil War and repealed after the war was paid for. That history does not scream "must prevent creation of dynastic wealth!" to me.
- ep103 9y agostraw man, it was the stated reason they originally implemented the tax, and has been the reason people have defended it since.
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- amluto 9y agoIf I'm reading this right, I could make a partnership (LLC or S-corp) and use it for normal activities, investment, consulting, etc., and I'd pay 15% total. This is nuts. Heck, Uber and Lyft drivers could set up as passthroughs and save a bunch. This is nuts. For the record: I think slashing the corporate rate is a good idea, but only if long-term capital gains are taxed high enough that the overall rate is reasonable.
- joshuaheard 9y agoThe LLC would pay 15%, but then you would pay your normal individual rate on top of that: 10%, 25%, or 35%. If you selected the LLC as a pass through entity, you could avoid the 15% tax on the LLC, and would pay your regular individual rate.
- amluto 9y agoThat would be a tax increase (currently the LLC pays nothing), and I don't think it's what's proposed. From the article: > Beyond cutting the tax rate to 15 percent for large corporations, which now pay a rate of 35 percent, Mr. Trump also wants that rate for a broad range of firms known as pass-through entities — including hedge funds, real estate concerns like Mr. Trump’s and large partnerships — that currently pay taxes at individual rates, which top off at 39.6 percent. I think Trump really is suggesting that, when you have income reported on Schedule K-1, you would pay 15% tax on that income.
- joshuaheard 9y agoAs I stated, there are two ways to tax an LLC: as a corporation (with a a separate proposed tax rate of 15%), and as a partnership (pass-through to taxpayer, no separate tax, taxpayer pays at individual rate). I posted the text of the plan, and there is no pass-through limit of 15%. There are no pass-through limits in the current law. If there was a 15% pass-through tax limit, it would be absurd, because everyone in the 25% and 35% tax brackets would just form LLCs and get paid through that. The Times is misconstruing the plan in order to give an absurd result, which they have done in the past with Trump.
- unabridged 9y agoRaising the standard deduction is nice. Ideally I'd like to see it drastically raised, like no tax on each person's first $30k. I'm surprised the democrats have never tried to push a policy like this, its the type of policy that would get support from many republican voters.
- maxerickson 9y agoDeductions apply to highest bracket income. The "first" $30,000 sort of implies lowest bracket income (because if you stopped working after earning that much, it'd reflect your entire earnings).
- unabridged 9y agoThe standard deduction is effectively a 0% tax bracket.
- maxerickson 9y agoIt's income with a 0% tax rate but the impact on effective rates is different than a 0% bracket; it lowers effective rates more for people that have income in higher brackets. A 0% bracket has the same impact regardless of income.
- archeantus 9y agoI wouldn't mind paying less in taxes. BUT WHAT ABOUT THE DEFICIT??? The deficit hasn't mattered to anyone before now, esp not in the last 8 years. Can't get any worse than it has been already for years now.
- Overtonwindow 9y agoJust because the tax rate is lowered doesn't mean companies will repatriate their money here. I think we need a law that penalizes companies for offshoring their money. If you want to be an American company, headquartered in America, then it should cost companies like Apple to offshore that money. Carrots and sticks should be used to bring that money back, but a lower corporate tax rate is a start, but not the solution.
- maxerickson 9y agoThey don't offshore money, they do profitable business in other countries and then don't want to pay taxes to move the proceeds to the US.