A few points in President Trump’s tax plan are of special interest to dealers, particularly that it would eliminate the estate tax and would change the way pass-throughs are treated. Both changes were discussed during the last NADA Washington Conference.
Dealers have sought to end the estate tax for many years. Now that there’s a Republican president and Congress sympathetic to the idea, repeal might have a better chance. The biggest argument against repeal is that the tax raises a great deal of federal revenue and is paid by only a small number of people.
The pass-through proposal should interest all small businesses. The Trump plan would set a new maximum pass-through rate of 25 percent for small business owners who file as sole proprietorships or partnerships, which represent about 95 percent of businesses in the U.S. Those businesses are now taxed at the individual rates of their owners, which for many is the top rate of 39.6 percent. (Trump’s original proposal had a pass-through rate of 15 percent.)
Both the National Federation of Independent Business and the National Association of Manufacturers praised the Trump plan for the way it would help small businesses. The proportion of federal revenue that comes from pass-through taxes currently is far greater than from the estate tax, and the loss of that revenue could potentially be a problem as the issue is debated in Congress.
One of the biggest challenges for the Trump tax plan is that it is vague about how the large amount of tax cuts would be financed. Proponents of the tax cuts say that they would cause businesses to increase their investments and hire more workers, but many economists question those claims, based on past experience.
Another challenge is all the publicity about how the Trump plan would benefit the rich enormously and the middle class only modestly. An analysis by the nonpartisan Tax Policy Center found that most of the benefits would go to the top 1 percent of earners. Such reports could make some moderates – or those in a tight election race next year – reluctant to vote for the plan.
Republican leadership in Congress plans to pass a tax plan through reconciliation, meaning that it would need only 51 votes (including a potential tie-breaking vote by Vice President Pence) in the Senate instead of the usual majority of 60. Majority Leader Mitch McConnell and others will work hard to pass tax reform to show at least one major legislative accomplishment this year.
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