According to a recent CFO.com article, President-elect Donald Trump’s proposed tax changes could significantly affect businesses and individuals. Here are five critical elements of his plan and expert analysis to help CFOs and business owners prepare and safeguard their financial health.
Tariffs
Trump has outlined an aggressive tariff strategy, proposing a 60% tariff on Chinese imports and a 25% to 100% tariff on goods from Mexico. Additionally, he plans to impose a 100% tariff on cars produced by Chinese automakers and imported from Mexico into the U.S. The proposed universal tariff of up to 20% on imports could significantly raise costs for businesses dependent on global supply chains. To mitigate these financial risks, business leaders should assess alternative supply chain strategies and plan for potential price adjustments.
Extension of the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (TCJA) is set to expire soon. Extending this legislation would prevent substantial tax increases for American taxpayers. However, while this may benefit households and the economy in the short term, it could significantly worsen the national debt, which is already unsustainable. To mitigate this risk, it’s crucial to implement spending cuts alongside tax cuts. Failing to do so could further jeopardize the nation’s financial stability.
Lowering the Corporate Tax Rate
To encourage domestic manufacturing, Trump has proposed reducing the corporate tax rate from 21% to 15% for companies producing goods within the U.S. Meanwhile, businesses manufacturing overseas might see a smaller tax cut, with rates dropping by approximately 1%.
Eliminating Taxes on Social Security and Tipped Wages
Trump has proposed two notable tax cuts targeting middle- and lower-income Americans: exempting Social Security benefits, tipped wages, and overtime pay from taxation.
Social Security taxes generate approximately $1 trillion annually, making it the largest source of federal revenue. Removing these taxes raises questions about offsetting the loss, especially as the Social Security trust fund faces depletion by 2035 without reforms.
Additionally, Trump’s plan to eliminate taxes on tips poses challenges for CFOs in industries like hospitality, where accurate reporting and equitable employee compensation are critical. While tipping culture has grown across sectors, it remains controversial. Even states with pro-worker policies, such as Massachusetts, have resisted replacing tipping with higher base wages for tipped workers.
Increase or Eliminate the SALT Cap
Trump has proposed raising or removing the cap on state and local tax (SALT) deductions, currently limited to $10,000 under the Tax Cuts and Jobs Act (TCJA). Expanding SALT deductions could relieve employees in high-tax states like New York, New Jersey, and California, particularly as businesses encourage workers to return to offices and cities grapple with commercial real estate challenges.
For CFOs, this policy shift could become a valuable tool for recruitment and retention, offering a financial incentive to top talent without the need to increase salaries to offset high taxes. Companies in high-tax states could gain a competitive edge in attracting and retaining skilled professionals, especially as workforce mobility remains a pressing concern.
Conclusion
By understanding and proactively planning for these potential changes, CFOs and business owners can position their organizations to adapt effectively while maintaining financial stability. Feel free to contact Huckabee CPA with any questions or a consultation.
