The opportunity to game the system arises from the huge gap between the tax rate paid on individual income — up to 39.6 percent now, or 35 percent under the Trump plan —<br />and the low rate on business income the president proposes, of 15 percent.<br />But under the Trump tax plan, my tax rate would fall to 15 percent from 28 percent,<br />saving thousands of dollars a year — enough to justify those annoyances.<br />Eric Toder of the Tax Policy Center has an intriguing idea in which pass-through entities would distinguish between standard returns<br />that business owners receive on capital they directly put into that business, which would be taxed at the low rate, and returns above that level.<br />But if the tax code is changed to lower the corporate income tax rate to 15 percent,<br />from its current 35 percent, that creates a different fairness problem.<br />One blunt and powerful way would be for the tax code to allow only some fixed percentage of pass-through income to benefit from the lower tax rate.<br />Simply put: The bigger the gap between the ordinary income tax rate and the tax on pass-through businesses, the more incentive<br />that people — especially high-earning people — will have to find a way to game the system.
