Eye on Tax Reform: President Trump’s Plan to Cut Tax Rate on Businesses

What are the real effects of lowering the tax rate to 15 percent, if President Trump’s proposed tax plan goes through?

  • Small business owners who currently pay tax at individual tax rates (sometimes as high as 39.6%) on their business income because they operate as pass-through entities will potentially see the biggest reduction in tax rate. This rate reduction will be even higher if they are subject to the additional .9% Additional Medicare Tax or the 3.8% Net Investment Income Tax.
  • Paying less in taxes could increase economic growth for businesses, which means they’ll have more money to invest in expansion.
  • Corporations considering moving to other countries in an effort to pay a lower tax rate may now be less likely to do so, which will increase tax revenues to some degree.
  • The lower business tax rate may be a wash, if the U.S. gets rid of certain “loopholes” (AKA tax credits and deductions), as President Trump has advocated.

Most economists agree that the cuts will boost economic growth. However, the question is by how much? Will there be enough growth to make up for the government’s loss of revenue? Some budget analysts expect that this lower corporate tax rate could mean a $3.7 trillion loss in revenue between corporations and pass-through entities over the next decade, according to the Committee for a Responsible Federal Budget.

Which parts of the proposed tax plan would be most beneficial to you – and which parts would be neutral or even detrimental? Our teams of tax and advisory professionals are keeping a close eye on President Trump’s tax proposal, as well as negotiations surrounding the plan.

Stay tuned for more insights – and reach out to your local Cherry Bekaert advisor anytime, if you’d like to have a conversation about what President Trump’s tax plan could mean for your unique tax situation.