Q&A of the Day – What’s in President-elect Donald Trump’s Tax Plan?
Each day I feature a listener question sent by one of these methods.
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Today’s Entry: Dear Mr. Mudd - Brian - Your radio program is always not only interesting but informative. Do you know if the Trump administration will lower the capital gains rate - it would dramatically increase stock trading - people tell me - if it was done.
Bottom Line: There’s an interesting dynamic in play with the tax policy of the incoming president of the United States. The current tax policy, including the existing capital gains tax rate, is for the most part his tax policy. The signature tax policy legislation of the first Trump administration, the Tax Cuts and Jobs Act, was largely left intact during the Biden administration. It is however, set to expire at the end of next year, meaning that action on tax policy will once again be a year one priority for the former and future president of the United States.
Of course, President-elect Trump’s next crack at tax policy will likely include many changes a la his campaign promise of no tax on tips or on overtime. Before diving into the specifics of capital gains tax rates here’s what Trump’s stated tax plan is:
Make existing Tax Cuts and Jobs Act policy permanent for:
- Income tax rates
- The standard deduction(s)
- Exemptions from the Alternative Minimum Tax
- Capital gains and qualified dividend tax rates
- Estate tax exemption
Proposed expansions of existing tax law for:
- Deduction for interest on auto loans for American manufactured vehicles
- A deduction for home generators
- Increase the child tax credit to $5,000 per child with no income limits
- New tax credit for caregivers who care for a parent or other family member
Proposed elimination of taxes for:
- Social Security
- Tips
- Overtime
- Double-taxation for income abroad
- Some income earned by first responders and military/veterans
- SALT (state and local tax) deduction limit of $10,000
So as mentioned Trump’s stated position is for capital gains is to make the existing policy permanent. With that said there is an annual inflation adjustment for the capital gains tax rate. Here’s what that looks like for for 2025.
Single filers earning...:
- $0 to $48,350: 0%
- $48,351 to $533,400: 15%
- $533,401+: 20%
For married couples the 0% threshold is doubled, while the 15% and 20% brackets are adjusted slightly higher than with single filers.
Now does this mean that everything outlined here is going to happen? No. Could it, yes with a caveat. Republicans will be in control of the House and Senate in the new Congress, however Republicans, with 53 seats in the senate will be seven seats short of a filibuster proof majority. This means that they will be able to pass through this policy for President Trump to sign temporarily, just as was the case in December of 2017 when the Tax Cuts and Jobs Act was passed originally, through the Budget Reconciliation process. For the policy to become permanent it would require the support of a minimum of seven Democrats or for Republicans to put an end to the legislative filibuster.
It’s also possible that what was proposed on the campaign trail is tweaked between now and when policy is put to paper in the new congress so stand by for news. It’s all but a guarantee that there will be an extensive new federal tax law with lower overall taxes passed within the next year. The devil will be in the details. I’ll keep you posted.