Tax reform: What Trump’s proposed tax cuts mean for you

Back when Ferris Bueller took his day off, the Challenger fell from the sky and the U.S. was in an economic recession, Congress last revised the tax code. In September, President Trump’s administration announced a plan called the “Unified Tax Reform Framework” to address tax policies that are over three decades old. It highlights income tax cuts, changes to the standard deduction and personal exemptions for you, your small business, or your corporation. Now, don’t worry about frantically calling your CPA to make an appointment. We did that for you.

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Highlights of the Unified Tax Reform Framework (Text)

Here’s what you need to know about Trump’s tax reform blueprint:

• Cuts income tax rates
• Doubles the standard deduction
• Eliminates personal exemptions
• Enhances the child tax credit

Income Tax Cuts and the Small Business Owner

Franklin Square Deli, a cozy sandwich shop in Downtown Kent, has served the community homemade soups and sandwiches for 34 years. The smell of smoke from the grilling sandwiches clings to customers’ clothes as they wait in the deli. The owner, Carl Picelle, is adamant that small businesses and the average American give too much money to the government.

“I personally think that we are a government that’s gone wild with trying to fund everything we can possibly fund,” Picelle said.

A few blocks away wafts the smell of fresh popcorn at a local confectionary shop called Popped!. Owner Gwen Rosenberg said when it comes to paying taxes for her business, simplification is a plus.

“It takes a tremendous amount of time. We have to file a quarterly estimated [tax]. So that takes a chunk of my day. My time is my most valuable asset, so anything that saves me time would be nice,” Rosenberg said.

Treasury Secretary Steven Mnuchin and other politicians including House Speaker Paul Ryan and Texas Senator Ted Cruz advocated for Americans to be able to do their taxes on a large postcard. Professionals, including Thomas Kusak, a CPA for Flask, Kusak and Company from Parma, Ohio, said they doubt the possibility of ever making taxes quite that easy.

Roberton Williams from the Urban Institute’s Tax Policy Center responded to Ryan’s announcement to his simplification plan which he calls “A Better Way.”

“Like every promise of a one-page tax return, this one is misleading at best. Sure, you can create a simple return, but only by moving many calculations to separate forms or worksheets,” Williams said. “Ryan and the House Republicans deserve credit for their proposal to simplify the tax code, but they aren’t making it as simple as their one-page return makes it seem.”

Kent State University accounting professor Malinda Nett said that in comparison to other countries, the United States is taxed relatively high. According to the Tax Foundation, the U.S. has the third highest top corporate tax rate at 38.92 percent. The average top corporate tax rate among 188 countries in the world is 22.5 percent.

The Tax Foundation notes that larger, more-developed countries tend to have higher top corporate income tax rates than less-developed countries. The Tax Foundation said in the past thirteen years, all regions in the world have seen a decline in their corporate tax rates.

However, Trump’s new tax plan highlights cuts to income taxes for individual filers and their families, small businesses and corporations.

“I’m excited about it personally–it is my opinion [that] not only businesses but citizens of this country are well over-taxed,” Picelle said.

Franklin Square Deli is small, but Picelle said his business is even smaller than small.

“I am a minute business, and some people like to refer to that as [a] ‘mom-and-pop-business,’” Picelle said. “I don’t like that terminology–I never did. There’s a lot of effort that goes into all these small businesses.”

Rosenberg’s popcorn shop is similar. “We’re a very, very small business,” she said. “For the most part I don’t think this administration would consider this business a ‘small business.’ It is microscopic.”

Rosenberg’s business employs 10 part-time employees to make ice cream, chocolate, popcorn and other sweet treats. The sweet scent fills the air of the shop as customers can gaze at the popcorn bins and chocolates shaped like acorns. 

“If they’re going to define a ‘small business’ as 500 full-time employees, clearly I’m not even in the same solar system,” Rosenberg said. “So while I think a lot of this discussion is about ‘small business,’ I don’t think it has anything to do with me. So I’m not optimistic it’s going to be beneficial to me at all.”

Currently, there are seven tax brackets taxpayers can fall into based on income and marital status when filing. The percentages range from 10 percent to 39.6 percent. The proposed plan suggests narrowing the brackets down to four. Low income taxpayers pay 12 percent, middle class taxpayers pay 25 percent and the wealthy pay either 35 or 39.6 percent.

Since the tax reform plan is still in its developing stages, it is difficult to project just how significantly taxpayers will be affected.

“I would tell any small business owner it’s just a state of unknown,” Nett, the accounting professor, said. 

But Nett gave an hypothetical example of a taxpayer who owns a business who would fare more favorably under Trump’s plan. Calculating the taxes paid by a typical family of five, she showed scenarios of different tax situations.

How will this affect you?

Thomas Kusak, from Flask, Kusak, & Company said despite cutting taxes across the board, the income tax cut does not affect everyone equally.

“I think there’s a benefit to the average person. I don’t think it’s going to be huge,” Kusak said. Those who qualify for the topmost tax bracket will see a greater difference in their pocketbooks than middle class or lower income Americans.

“To a higher income person it will be more beneficial [if] the top tax rate is at 35 instead of 39.6 [percent],” Kusak said.

Kusak said the theory tends to be that cutting income tax rates contributes to the growth of the economy. The more money the average customer has, the more they can participate in purchasing goods and services, thus securing jobs. However, since the idea that lowering tax rates potentially boosts the economy remains a theory, Kusak said, “…you’re kind of taking a leap of faith.”

Picelle of Franklin Square Deli said he believes it is hard for the government to please everyone with tax reform.

“At this moment there have been talking points, and there’s been targets, and we know there’s going to be an ensuing war over any tax cuts,” Picelle said. However, he remains optimistic that he will see cuts in the amount of taxes he pays.

Kusak said that since the plan is still under revision, it is difficult to quantify exactly how much individuals, small businesses and corporations could benefit from the tax cut. For now, he believes it will help individuals “a little bit.” Small businesses, he believes, will see an advantage to the plan to cap income tax at a maximum percentage.

“What they’re talking about doing here that’s a nice benefit to the small business owner is capping that off with the most tax they’ll pay on their federal tax return…the profit from the business will be capped off at 25 percent. That’s significant tax savings for the small business owner,” said Kusak.

Picelle agrees with Kusak and said, “I think overall it will help all businesses whether it’s micro, mini, small.”

 

#JMCRPP President Trump’s tax proposal benefits small business, accountants say. Read here https://t.co/icG7sXIkFI

— Sam Madison (@samthepinetree) November 13, 2017

Worried about doing your taxes this spring with all this reform talk? See who we talked to in order to help break it down. #JMCRPP https://t.co/eKmmKxYLaQ

— Bree Kocher (@BreeKocher) November 13, 2017

Interested in the implications of the proposed Republican tax plan…particularly in Portage county…read more here….https://t.co/mlzg9dvv2V #JMCRPP

— Anthony Calvaruso (@CalKentJMC) November 13, 2017

Text by Brianne Kocher. Video by Davy Vargo. Graphics by Anthony Calvaruso.