While President Donald Trump offered a sparse blueprint of his tax reform plans, released Wednesday in a one-page document, industry officials and advisors on Thursday saw some bright spots, adding that the plan was merely “an opening bid” that’s likely a tough sell in Congress.
“We do not think taxes will be the primary driver for most investors and their investment decisions,” said Andrew Crowell, vice chairman of D.A. Davidson’s Individual Investor Group. “It’s the proverbial tail wagging the dog.”
Crowell notes that “the majority of savers have their retirement nest egg in a ‘sheltered’ account like an IRA, Roth IRA or 401(k),” so “none of the capital gains savings or corporate tax cuts directly impact these accounts.”
Indeed, Brad McMillan, chief investment officer for Commonwealth Financial Network, noted in a Thursday commentary that to pay for the proposed tax cuts, the administration would “eliminate all tax deductions, except the mortgage, charitable giving, and retirement savings deductions.”
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Notably, however, McMillan continued, “residents of states with high taxes would not be able to deduct those taxes. Depending on where you live, and how many deductions you take, you might end up paying more.”
Costs at the federal level “could be significant as well. Independent experts report that the plan would raise much less revenue for the country than the current tax laws do. The administration expects lower taxes to spur faster growth, making up for the shortfall, but if not, the deficit would rise substantially,” McMillan said.
While the numbers are “uncertain,” McMillan added, “as the plan includes few details so far… it does seem reasonable to conclude that, without that additional growth, the deficit would indeed grow, perhaps by a great deal.”
Trump’s plan also reduces the number of tax brackets, the highest of which is currently 39.6% from seven to three–at 10%, 25%, and 35%, and doubles the standard deduction, to $12,700 for individuals and $25,400 for couples, so married couples making less than that would not pay income taxes at all.
Crowell noted that “once we know where the personal income tax rates land, we’ll have some guidance for what that would mean for retirees tapping into their retirement savings.”
David Haraway a planner with Substantial Financial in Colorado Springs, states that from the “early details, I see it as a flat-tax plan for the 95%, with three brackets. By doubling the standard deduction it will make most people non-itemizers, whether they have mortgage interest or not, since few people have $25,400 in itemized deductions, except those high-tax states.”