How Trump's Tax Plan Could Affect Connecticut

from an article in the Hartford Courant

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Insights  <  Hartford Courant: How Trump's Tax Plan Could Affect Connecticut

from an article in the Hartford Courant

Connecticut and its taxpayers would see some benefits and some challenges if Congress adopted tax reform measures – including cuts for wealthy families, business owners and wage earners – that President Donald Trump is likely to propose Wednesday.

That’s the view of a tax partner at BlumShapiro, the West Hartford accounting and consulting firm that analyzed some of the likely changes emerging ahead of Trump’s scheduled speech on tax reform in Indianapolis.

Early reports had the Trump plan cutting the highest rate for individual taxpayers to 35 percent from the current 39.6 percent. But late Tuesday, Politico and others reported that might not happen.

Andrew Lattimer at BlumShapiro also expects the president to propose an elimination of the estate tax for wealthy people who die, and a reduction of the federal corporate earnings tax rate to 20 percent, from 35 percent.

The number of tax brackets could be as low as three, down from the current seven.

One possible measure of high importance for Connecticut is a proposal for the tens of thousands of nonincorporated businesses whose profits are taxed as ordinary income for their owners. They would see a flat tax rate of 25 percent, Lattimer suggested – very likely lowering the tax for the owners of most profitable businesses.

That’s good for Connecticut because, as a rich state with low poverty, this state tends to have more business activity per capita than most states.

Another benefit to Connecticut could be the elimination of the alternative minimum tax, which applies to high, but not super-high, earners who have a large number of deductions.

But another change could have the opposite effect in Connecticut: Trump might propose to eliminate the deduction for state income taxes in federal income tax calculations. That means a person who pays, say, $4,000 in state income tax and is in a 25 percent federal bracket would pay an extra $1,000. That obviously hurts states with a significant income tax.

Eliminating the federal estate tax, which applies to estates of more than $5.5 million for individuals, $11 million for couples, supposedly has the benefit of increasing spending by the rich – as a way of stimulating the economy. Many economists deride that idea and many progressive tax advocates call the elimination of estate taxes nothing but a sop to the rich. In any case, Connecticut could be hurt by it, as it would further exacerbate the added cost of dying rich in this state compared with elsewhere.

It remains unclear how and whether the Trump plan would help the voters who were so crucial to his election: middle-income wage earners. Trump has said that group will benefit “tremendously,” a claim some critics are already refuting.

One possible answer: The president could also propose a doubling of the standard deduction for households and individual taxpayers.

Trump is likely to use economic growth and higher profits and payrolls as the major benefit of the reform package and Democrats are likely to say the plan amounts to a giveaway that bankrupts the federal government with no clear gain in economic activity.

“This could finally help the state improve [its] business climate and create new business growth after a generation with none,” BlumShapiro said in a slide presentation Tuesday.

Oz Griebel, CEO of the MetroHartford Alliance, who joined Lattimer in an announcement about the Trump tax reforms, added, “The solution to our fiscal problems here is growth. To the extent these programs at the federal level could be helpful, we still need to focus on our own situation here in Connecticut.”

Read the full article here >>

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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