In a nutshell, the Trump Administration principles for tax reform would
among other things:
* Reduce tax brackets from seven to three.
* Set rates at 10%, 25%, and 35%.
* Repeal the estate tax.
* Set the top tax rate at 20% for capital gains and qualified dividends.
No doubt, the White House has made tax reform a centerpiece and top
priority. Key policy issues and concerns abound as to whether lost tax
revenue will create gaping budgetary deficits, and as to who will really
benefit from these reforms – will it be the wealthiest and top earners at
the expense of middle earners who will shoulder future deficits and federal
Corporate rates at 15% would switch the U.S. from having some of the
highest tax rates of any OECD country to having some of the lowest and in
the ballpark of Ireland at 12.5%, one of the most competitive countries in
the world, whose GDP in the last quarter of 2016 grew at an enviable rate
What remains to be seen is whether the economic growth that results from
these steep tax cuts will be enough to finance their costs.
The U.S. estate tax was originally introduced to promote greater economic
intergenerational equality, nation-building, and social cohesion by
limiting the ability to pass on inherited wealth. Its repeal would benefit
the very wealthiest. The high present exemption level means the tax only
applies to a person who in 2017 has a worldwide wealth of over US$5.49
million and for a married couple over US$10.98 million. As a result, very
few pay estate tax, only about two individuals per 1,000.
The Trump campaign proposal was to replace the estate tax with a capital
gains regime on death. It is not clear under the new proposals whether the
estate tax would be replaced by a different form of tax.
It is startling to think that these proposals could make the U.S. a
preeminent tax haven for many.
The repeal of the estate tax would certainly help to minimize tax exposure
and complexity in estate planning in owning a U.S. vacation home or other
U.S. situs assets, including U.S. securities. Those who have a U.S. spouse,
child, or other U.S. beneficiary would no longer have to be concerned about
exposing the wealth they pass on to a 40% tax at the beneficiary level.
And the proposal of a top tax rate of 35% might be attractive for those who
have the ability to become a U.S. tax resident, in comparison to the top
effective Canadian tax rate of over 53% in several Canadian provinces.
What the future holds, how tax reform in the U.S. will roll out, and the
exact details are unknown and remain to be seen. But what is known is that
the U.S. is now embarking on the biggest tax reform of a generation – pure
and simple...or maybe not?
is the principal of the Toronto-based trusts and estates law firm
O’Sullivan Estate Lawyers. She practices exclusively in the areas of estate planning, estate
litigation, advising executors, trustees and beneficiaries, and
administration of trusts and estates. This article originally appeared
O’Sullivan Estate Lawyers blog. Reprinted with permission.
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