Trump

Article Dean Dorton

On Wednesday, April 26, the White House issued a single page of double-spaced bullet points outlining President Trump’s tax proposals. These proposals undoubtedly will be worked-over by Congress in coming weeks and months, so perhaps the best way to view them is as the beginning of a lengthy and likely contentious process leading to outcomes that could be very different from these initial proposals.

Here are some of the highlights of President Trump’s plan:

Individual

  • Individual tax brackets, of which there now are seven, ranging from 10% to 39.6%, would be reduced to three brackets, 10%, 25%, and 35%. No details have been announced about where the breakpoints in the brackets would be.
  • Home mortgage and charitable gift tax deductions would be protected under the plan, but other itemized deductions (those for medical expenses, state and local taxes, and miscellaneous) are not mentioned and may not be intended to survive under the proposals.
  • Additional tax breaks largely targeted at the middle class would provide a doubling of the standard deduction and additional tax relief for working families with child care expenses.
  • Three taxes significant to our clientele would be repealed under the President’s plan, these being the alternative minimum tax, federal estate tax, and 3.8% tax on net investment income.
  • The skeleton-like proposals make no mention of any change in tax rates on capital gains.

Business

  • For businesses, a flat 15% tax rate would replace the multiple existing corporate tax brackets ranging from 15% to 35%. This 15% rate apparently would apply to corporations and to pass-through entities (and perhaps sole proprietorships) also.Many questions regarding how the proposed 15% tax rate on pass-through entity business income would be structured are unresolved at this early stage of the process.
  • For businesses operating outside the U.S. the plan calls for a territorial tax system, which generally would exclude from U.S. tax foreign business income. Also, the plan would impose a one-time tax on corporate earnings held overseas and on which U.S. tax has been deferred.The “one-time tax” rate is not specified.

We welcome discussing these proposals with you, but until “there’s more meat on their bones,” many questions will be unanswerable.

Article Dean Dorton

As expected, much of Presidential debate involved healthcare issues and, specifically, Trump’s wish to repeal the Affordable Care Act (ACA). But what will be the effect of repealing the ACA?

Rand Corp reports that all of Trump’s proposals decrease the number of insured and increase out-of-pocket spending for consumers enrolled in individual market plans. Repealing the ACA is also expected to raise the federal deficit compared to the ACA, as the ACA has provisions that reduce spending and generate revenue, such as changes to Medicare payment policy, taxes and fees levied on insurers, medical devices, and branded prescription drugs(1).

The Center for Health and Economy’s estimates, however, are much different than Rand’s estimates as it estimates 18 million fewer insured in the first year, but, the federal deficit will decrease $583 billion between 2017 and 2026(2).

It’s quite evident that the ACA won’t stay in its current form under Trump’s presidency and the Republican Congress, but the implications of repealing or even modifying the ACA are still unclear. Whatever happens, most of Trump’s wishes require an act of Congress.

For hospitals, economics firm Dobson DaVanzo report the repeal will equate to an estimated negative impact of $165.8 billion from 2018 to 2026, which is less than the ACA’s Medicare reductions to hospitals of $289.5 billion from reductions in their inflation updates(3).

Medicaid Changes

Only 19 states opted against Medicaid expansion. Repealing the ACA will put about 20 million people to uninsured status again, but Trump has pointed to a successor plan that includes the allowance to fully deduct all health insurance premiums, allowing insurance plans to be sold across state lines, ensuring price transparency for medical procedures and other health care costs, expanding access to health savings accounts that are tax free, and turning Medicaid into block grants to states, and allowing medications to be imported in an attempt to increase competition in drug pricing(2).

Trump’s wish for use of Medicaid block grants differs greatly from the entitlement program that currently exists. Under the block grant, the government will give states a lump sum of money to use at their own discretion. Many supporters of this idea believe block grants will entice states to reduce waste. The hope is that Republicans at the state levels use these block grants for their intended purpose. Another hope is that the block grants are enough to sustain the Medicaid program for each state, but hospitals and clinics should fear the loss of millions of dollars in revenue and resulting in staff reductions and scaling back services at hospitals.

As expected, much of Presidential debate involved healthcare issues and, specifically, Trump’s wish to repeal the Affordable Care Act (ACA). But what will be the effect of repealing the ACA?

Rand Corp reports that all of Trump’s proposals decrease the number of insured and increase out-of-pocket spending for consumers enrolled in individual market plans. Repealing the ACA is also expected to raise the federal deficit compared to the ACA, as the ACA has provisions that reduce spending and generate revenue, such as changes to Medicare payment policy, taxes and fees levied on insurers, medical devices, and branded prescription drugs(1).

The Center for Health and Economy’s estimates, however, are much different than Rand’s estimates as it estimates 18 million fewer insured in the first year, but, the federal deficit will decrease $583 billion between 2017 and 2026(2).

It’s quite evident that the ACA won’t stay in its current form under Trump’s presidency and the Republican Congress, but the implications of repealing or even modifying the ACA are still unclear. Whatever happens, most of Trump’s wishes require an act of Congress.

For hospitals, economics firm Dobson DaVanzo report the repeal will equate to an estimated negative impact of $165.8 billion from 2018 to 2026, which is less than the ACA’s Medicare reductions to hospitals of $289.5 billion from reductions in their inflation updates(3).

Medicare Changes

Trump promised to leave Medicare alone during his campaign. But with his choice of Rep. Tom Price to head the Department of Health and Human Services, changes to “modernize” Medicare may be looming. Medicare has been stable for more than 50 years, but Price agrees with House Speaker Paul Ryan in his approach to replace the traditional Medicare program with a system of vouchers that beneficiaries can use to purchase coverage through private plans. While many believe Medicare is financially unsustainable, others believe a voucher system is unsustainable and much less efficient than Medicare. Price and Trump have recently favored health savings accounts to help individuals pay for health insurance, but Trump has recently been quoted to not wanting to abolish Medicare. While the affluent may stay in the traditional Medicare program, the average American may opt to accept the higher deductible plans through private insurance which creates cost shifting.

One area in which both a majority of Democrats and Republicans agree is in allowing Medicare to negotiate drug prices. Trump claims to be able to save Medicare $300 billion by negotiating the purchases of drugs from major pharmaceutical companies(4).

More recently, in a December 6 letter sent to Trump and Congressional leaders, the American Hospital Association and the Federation of American Hospitals both urged Congress, under the prospective repeal, to include legislation for the restoration of the Medicare hospital inflation updates and the disproportionate share hospital payments that were cut to offset coverage gains under the ACA(3).

If you have any questions or would like to learn more, contact:

Adam Shewmaker ashewmaker@ddafhealthcare.com
Dan Schoenbaechler dschoen@ddafhealthcare.com

 

Sources:

  1. Estimating the Impacts of the trump and Clinton Health Plans; Rand
  2. The Ultimate Q&A about Health Care under a Trump Presidency; Washington Post
  3. Hospitals warn of job losses, billions in cuts if trump repeals ACA; Modern Healthcare
  4. Trump: Make Medicare Great Again; US News

Article Dean Dorton

With the upcoming changes in the political arena, interest on municipal bonds is at risk of becoming subject to federal income taxation. Under the current U.S. tax code, when investors lend money to local or state governments to finance infrastructure — in other words, buy municipal bonds — the investor in-turn receives interest throughout the term of the loan that is exempt from federal income taxation.

However, as President-elect Donald Trump and a Republican-controlled Congress are mapping out their plans to finance massive infrastructure spending, they’re looking more to having governmental infrastructures financed in part by tax credits, private equity investments, and taxable municipal bonds to offset the credits or tax cuts.

Trump economic advisors, private-equity investor Wilbur Ross (Trump’s choice to lead the Department of Commerce), and University of California at Irvine business professor Peter Navarro question why interest should be exempt from federal taxation when the debt was issued by the state and local governments. The advisors additionally argue that municipal bonds aren’t an efficient way to pay for public projects because a percentage of the tax savings goes to the bondholder. Instead, federal tax credits and private investments are considered a more ideal supplement to existing financial programs, along with taxable municipal bonds.

Click the botton below to read the full article from Navarro and Ross discussing the potential changes to the municipal market by the Trump infrastructure plan.

Read the Article

If you would like to discuss this article or learn more, please contact Lashanda Stewart, Specialist in Tax Services, at lstewart@deandortonstg.wpenginepowered.com.

Article Dean Dorton

Whether you’re happy or not about the outcome of Tuesday’s election, now that we know we have Republicans in the White House, both houses of Congress, the governorship and the state legislature, it’s time to start thinking about taxes. It is quite possible that there will be significant changes to federal income and estate taxes for 2017 and possible (though perhaps not until 2018) to Kentucky income and other taxes.

With the potential for lower income tax rates for 2017, more than most years, it’s important to consider accelerating deductions to 2016 and deferring income to 2017. Below are tables showing proposed individual rates the House Republican Tax Plan and Trump’s Tax Plan from the Tax Foundation (see below for links).

Tax Brackets Under Current Law and the House Republican Tax Plan

Ordinary Income Capital Gains & Dividends
Current Law Proposal Current Law Proposal Single Married Filing Jointly Head of Household
10% 12% 0% 6% $0 to $9,275 $0 to $18,550 $0 to $13,250
15% 12% 0% 6% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
25% 25% 15% 12.5% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
28% 25% 15% 12.5% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
33% 33% 15% 16.5% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350
35% 33% 15% 16.5% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000
39.6% 33% 20% 16.5% $415,050+ $466,950+ $441,000+

Tax Brackets Under the Trump Plan

Ordinary Income Capital Gains Single Filers Married Filing Jointly
12% 0% $0 to $37,500 $0 to $75,000
25% 15% $37,500 to $112,500 $75,000 to $225,000
33% 20% $112,500+ $225,000+

Other plan elements:

  • Both plans eliminate the estate and gift taxes and the step-up in basis – the House plan completely eliminates the step-up; the Trump plan disallows a step-up for estates of $10 million or more.
  • The House plan eliminates all itemized deductions other than mortgage interest and charitable contributions.  The Trump plan caps itemized deductions at $100,000 for single filers and $200,000 for married filers.
  • Both plans eliminate the alternative minimum tax.
  • The House plan reduces the top corporate rate from 35% to 20%, the Trump plan calls for an even lower 15% maximum rate.
  • The House plan allows immediate deduction of the cost of capital investments but disallows the deduction for net interest expense on future loans for all businesses.  The Trump plan allows businesses to choose between an immediate deduction for capital items and a deduction for interest paid.
  • Both plans eliminate the domestic production deduction and all other business credits except for the R&D credit.
  • The House plan taxes business income on a territorial basis rather than a worldwide basis and creates a “deemed” repatriation of currently deferred foreign profits taxed at 8.75% for cash profits and 3.5% on other profits.  Trump’s plan proposes a 10% tax.

While we don’t yet know if any of these plans will be enacted or what their final form may be, it’s worth considering the potential impact on your tax bill.

Links to Tax Foundation articles on proposed tax plans:

Contact your Dean Dorton advisor if we can be of assistance.