Donald Trump campaigned on a promise to lower tax rates for individuals and corporations. He also proposed penalizing those companies that attempted to shift jobs out of the U.S.
Over the course of his 16-month campaign, Trump promoted massive tax-law changes, including lowering the corporate tax rate from 35 to 15 percent. He proposed limiting the top individual income-tax rate on pass-through businesses such as partnerships to no more than 15 percent. The current rate is 39.6 percent. Trump also outlined the repeal of the corporate alternative minimum tax and a repeal of the federal estate and gift taxes.
What’s more, the Republican-controlled Congress is purportedly planning a massive overhaul of the nation’s tax system.
The Tax Foundation and the Tax Policy Center analyzed Trump’s tax proposals and concluded that the president’s plan would benefit the wealthiest household by an average of more than $1.3 million per year, thus significantly lowering taxes for the well-off. Middle-income America would see a tax cut averaging just over $2,500. Analysts agree that his ideas would increase economic growth by 11 percent, increase wages by 6.5 percent, and create 5.3 million jobs. The Trump plan, however, may lead to a $10 trillion revenue loss for the government.
With the election over, it’s time to get to work; and Trump and the House Republicans have both streamlined their previous aggressive proposals. Both now seem to reduce the top tax rate for individuals from 39.6 percent to the previous top rate of 36 percent. It’s expected that the Affordable Care Act will be repealed, thus eliminating the 3.8 percent surtax on net investment income.
Trump and Congress are still in favor of eliminating the estate tax. Currently, the federal government reports that 1 percent of its budget is attributable to the estate tax. In 2015, the Center on Budget and Policy Priorities reported that only two out of every 1,000 people who die owe any estate tax. The wealthiest 1 percent of American families hold about 42 percent of the wealth in this country. Analytically, the elimination of the estate tax would exacerbate the income gap, ceding more control to the country’s wealthiest. The flurry of debates between Republicans, Democrats and the independent groups who monitor their proposals will go on forever. It seems no matter who is elected to office, there may never be an agreeable system that works. The controversy has existed for hundreds of years, and more than likely will continue in the future.
Death and taxes
In a letter dated 1789, Benjamin Franklin wrote, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”
These past few months, many of our clients have sought advice on the best strategy to anticipate future tax law changes. My best advice is to plan for what’s in place today, yet be nimble enough to strategically shift into the appropriate structure. Massive changes to hedge against potential, forthcoming legislation can be expensive, time consuming, and run the risk of the proposed policies failing to coming to fruition. It’s difficult to imagine that changes in tax policy can be the ultimate decision maker for transactions. My advice is that good economics is always the catalyst for good business. It’s the steady performers who always seem to be the most successful. The best CEOs always gather the appropriate data and employ knowledgeable, trustworthy and team-oriented employees and advisors. Don’t get caught up in hearsay. Don’t let political statements cloud your judgment or influence you to make a costly, irreversible decision in the future.
In today’s ever-competitive environment, I would hope that the influence of both Ben Franklin and Donald Trump help you focus more on the day-to-day of operating a company. Collaborate with other like-minded business owners to ensure the success and viability of American businesses. Create jobs by staying one step ahead of our international competitors. Invest in technology, infrastructure and education for our American corporations.
Three cornerstones of business success
- Clarity in your business. Unsuccessful and struggling companies suffer from a clear lack of understanding of how their business should work. Education on basic principles should be at the forefront of the business plan. Strong and successful companies can have many working parts and products. Management needs to understand, each working day, how each component works, and manage the processes to keep it running smoothly. Education, market analysis of your competitors, and best business-practice policies should be implemented. Competition in today’s markets is a daily grind.
- Team management and expectations. Setting team expectations and accountability directly impacts your operation. At a minimum, meet with your team leaders on a monthly basis. Create an agenda that the group knows, in advance, will be addressed. Have each member participate in the discussion. Don’t let these sessions turn into an airing of grievances on why goals are not being met. Try to stay focused and maintain control during these meetings. Know the strengths and weaknesses of your players, stroke them when needed to get the most from them. The more these leaders understand and appreciate their roles, the more confident and productive they will be; an infectious attitude which will trickle down to their team.
- A great culture. Diversity in the workplace — whether in race, gender or socioeconomic status — is positive. However, diversity in values can lead to a company’s downfall. Transparency with your employees facilitates their understanding that you care enough to educate them to become better. When employees ask questions in their workplace, they become more engaged and seek ways to help the company.
Let’s see where Trump and Congress leads us the next few years, and the impact they will have on American businesses. While they debate, and others analyze, let’s stick to the basics of good business practices. Find the best people, advisors and business models to overcome any type of intermediate tax structure. As history has proven, tax laws will change. Good businesses find ways to adapt and stay successful.
Mark S. Carrow, CPA, MS, is the managing partner in Citrin Cooperman’s Philadelphia office, which provides tax services, business consulting advice, valuation services and merger and acquisition guidance. www.citrincooperman.com. Contact him at firstname.lastname@example.org.