CNBC’s Ron Insana says it will be “all well and good” if Donald Trump’s tax plan simplifies the code and lowers taxes for all, but he explains there is “an under-discussed and more interesting wrinkle” in the new proposals.
“The greatest irony of the election may very well be that the people who voted for Donald Trump will benefit the least from his policies while those who opposed his election will reap the greatest rewards," Insana wrote for CNBC.com.
“It is true that individual tax rates will go down, to some extent for almost all taxpayers,” said Insana, who often criticized Trump during the campaign.
"However individuals like me, whose income flows through so-called pass-through entities, like S-Corp, partnerships or LLCs, may receive an even bigger break than has generally been discussed," Insana said, citing a presentation by Andy Friedman, the founder and principal of The Washington Update.
Insana said that currently, individuals who set up an S-Corp, LLC, or even sole-proprietorship (which is unincorporated), receive payments for their labors through "pass-through entities."
Under the current law, if your pass-through entity earns $1 million, and your deduction and expenses total $400,000, your adjusted gross income would be $600,000. You would then be taxed at individual rates so that the blended rate under the current code would equal roughly 33 percent of your AGI, or about $220,000, Insana said.
Under the new plan, there is a big benefit for folks who legitimately use these entities. If the Trump plan were to go through intact, and your AGI totals $600,000 after expenses and deductions, you would pay tax at the corporate rate of 15 percent, cutting your federal tax bill to about $90,000, Insana said.
“Your effective tax rate would fall by more than 50 percent! You would save roughly $130,000 under the new plan,” he said.
In Trump's federal financial disclosure forms, he was shown to be the owner of over 550 limited liability corporations, or LLCs! He may stand to gain bigly from his own tax policy.
Insana points out low-to-middle income earners will receive very little benefit from the Trump tax plan. “However, they would likely bear much of the burden of future deficits through cuts in programs and services,” he said.
Obviously, not everyone would agree with Insana's speculation.
Financial guru and Donald Trump adviser Wilbur Ross told Newsmax TV that the president-elect's "very progressive" tax strategies will mean lower financial burdens for all companies and eventually "every single category of wage earner."
The WL Ross & Co. chairman and CEO told "Newsmax Prime" host J.D. Hayworth said Trump's deregulation plan will also help revive growth.
"The tax cut . . . in plain English means that anybody who's paying the full tax now as a business will get an immediate 30 percent boost to post-tax earnings," he told Hayworth.
"Very few companies have earnings growth of 30 percent in a year, so that's a wonderful thing and it's a permanent thing," he said, explaining how Trump will also slash taxes for all levels of wage earners.
"Every single category of wage earner, with one or two little flukey anomalies that'll be dealt with in the final legislation, gets a reduction," he added.
"A married couple with two children and a nanny earning $50,000 a year will get more than a 35 percent reduction. Same couple, same number of children having a nanny earning $75,000 will get a little over a 30 percent reduction. Same family structure earning $5 million a year will get around a 3 percent reduction," Ross said.
"It's a very progressive thing in the sense that the least percentage benefit goes to the higher bracket and the highest percentage benefit goes to the lower bracket," Ross said.
"That's important because the propensity to spend is much higher than the lower brackets, which in plain English means they'll be buying things and that in turn will stimulate the economy," Ross said.
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