by Jean Miller | Accounting News, News, Newsletter
The Trump administration’s tariffs on key trading partners, including Canada, Mexico, and China, could have far-reaching consequences for U.S. consumers. With a 25% tariff on Canadian and Mexican goods, a 10% tariff on Chinese imports, and a lower 10% tariff on Canadian energy resources, American businesses and consumers may feel the financial strain. Read on as we discuss how tariffs can effectively protect domestic industries, but not without economic ramifications, notably higher prices for everyday goods and services.
What Are Tariffs and Who Pays for Them?
Tariffs are taxes on imported goods. In theory, they encourage domestic production. However, tariffs make foreign products more expensive because the foreign companies importing these goods do not directly pay these taxes. Instead, U.S. businesses that import these products are responsible for tariff costs, which are often passed on to consumers through higher prices.
How Tariffs Lead to Higher Prices for Consumers
The ripple effect of tariffs impacts prices in multiple ways:
- Direct Cost Increases: When businesses have to pay more for imported materials or products, they typically increase prices to maintain profitability. Consumers will likely pay more for cars, electronics, appliances, and other imported goods affected by these tariffs.
- Higher Manufacturing Costs: Many U.S. companies rely on imported raw materials like steel and aluminum. Increased costs for materials lead to higher prices for American-made products, reducing affordability for consumers.
- Retaliatory Tariffs: In response to U.S. tariffs, other countries may impose their own tariffs on American exports, making U.S. goods more expensive abroad. At the time of writing, China has imposed retaliatory tariffs on the U.S., while Mexico and Canada reached agreements with the U.S. to delay tariffs temporarily.
- Increased Costs for Energy and Transportation: The 10% tariff on Canadian energy resources could raise fuel costs, affecting transportation, shipping, and delivery services. This can indirectly increase prices on a wide range of goods, including groceries, clothing, and consumer goods.
Potential Benefits of Tariffs
While tariffs generally lead to higher consumer prices, there are some potential benefits:
- Boosting Domestic Industries: Tariffs make foreign goods more expensive, incentivizing consumers and businesses to buy American-made products. This can strengthen domestic manufacturing and job creation.
- Trade Negotiation Leverage: Tariffs can be used to push trading partners to agree to more favorable trade deals for the U.S., potentially reducing unfair trade practices.
- Reducing Trade Deficits: Higher tariffs may decrease imports, leading to a lower trade deficit as more money stays within the U.S. economy.
Tariffs, in theory, protect American jobs and industries, but the immediate effect on consumers is higher prices on goods and services. Consumers should prepare for rising costs and budget adjustments. Whether the long-term benefits of tariffs outweigh the short-term financial pains remains a debate among economists and policymakers.
by Stephen Reed | Accounting News, News, Newsletter, Tax, Tax Planning
After Donald Trump’s win in November, taxpayers are wondering how a second Trump term could reshape U.S. tax policy. Trump’s first term saw sweeping changes under the Tax Cuts and Jobs Act (TCJA) of 2017. With key provisions of that legislation set to expire in 2025, Trump’s proposals offer a glimpse of his tax priorities. From significant individual tax cuts to business-friendly policies, here’s what you need to know.
The Expiration of the 2017 Tax Cuts
The TCJA lowered tax rates across the board, nearly doubling the standard deduction—which eliminated the need for itemized deductions—and capping the state and local tax (SALT) deduction at $10,000. These changes contributed to lower tax bills for many Americans. However, the individual tax cuts were temporary and are set to expire at the end of 2025 unless Congress acts to extend them.
If re-elected, Trump has indicated that extending or making these provisions permanent would be a top priority. Without an extension, taxpayers could see higher marginal tax rates, a reduced standard deduction, and the return of personal exemptions.
Removing the $10,000 SALT Deduction Cap
The SALT deduction, which allows taxpayers to deduct state and local taxes on their federal tax returns, became a testy issue after the TCJA imposed a $10,000 cap. This change particularly affected residents in high-tax states like New York, California, and New Jersey.
Trump has proposed removing the cap, a move that would benefit taxpayers in those states while potentially increasing the federal deficit. Critics argue that eliminating the cap would disproportionately benefit higher-income households, but supporters see it as a necessary adjustment to provide relief to middle- and upper-income earners in high-tax areas. Steven Moore, a senior economic advisor to Trump, recently floated the idea of doubling the cap to $20,000 as a potential compromise.
Eliminating Taxes on Social Security and Tip Income
Currently, up to 85% of Social Security benefits can be taxable, depending on your income level. Trump’s tax plan consists of eliminating these taxes, which would provide retirees with additional financial security. Trump has also floated the idea of eliminating taxes on tips, which would increase take-home pay and simplify tax compliance for hospitality and service industry workers. However, this proposal has sparked discussion over the potential impact on tax revenue and fairness in the tax code.
Reducing the Corporate Tax Rate
The TCJA decreased the corporate tax rate from 35% to 21%, which rendered the U.S. more competitive globally. Trump has suggested lowering the rate even more, potentially to 15%. Those in favor of this plan say that it could spur economic growth and encourage domestic investment, while critics are concerned about increasing the federal deficit.
Trump’s Tariffs
Trump has been clear on his stance on tariffs. During his first term, Trump imposed tariffs on various goods, particularly from China. Tariffs are not taxes in the traditional sense, but they can indirectly affect taxpayers by increasing the cost of goods and services. Businesses often pass these costs onto consumers, so households, particularly those in middle- and lower-income brackets, could feel the strain of tariffs.
by Jean Miller | Accounting News, News, Newsletter, Small Business
As the United States prepares for a second Trump presidency, small business owners are paying close attention to the policies that could shape their future. Trump’s economic priorities, including tax reform and deregulation, will echo those from his first term. Here’s an analysis of how Trump’s proposed policies could impact small businesses.
The Tax Cuts and Jobs Act: A Retrospective
One of Trump’s most influential achievements during his first term was the passage of the Tax Cuts and Jobs Act (TCJA) in 2017. The law lowered the corporate tax rate from 35% to 21%, benefiting small businesses organized as C-corporations. Additionally, it introduced the Qualified Business Income (QBI) deduction, allowing certain pass-through entities—like sole proprietorships, S-corporations, and partnerships—to deduct up to 20% of their qualified income.
This meant lower overall tax liabilities for small businesses, leaving more funds for reinvestment, hiring, and growth. However, critics argue that larger businesses reaped the benefits disproportionately while small businesses felt minimal relief.
Key Focus Areas Under a Second Trump Administration
Several proposed policies stand out for their potential to reshape the small business landscape during Trump’s second administration.
Lower Corporate Taxes
Trump has suggested reducing the corporate tax rate further to 15%. For small businesses structured as corporations, this could mean even more tax savings, allowing for more funds to invest in technology, marketing, hiring, and training. Additionally, Trump has floated the idea of eliminating taxes on employee tips for hospitality and service workers.
Pros:
- Increased cash flow for reinvestment.
- Greater incentives to expand operations or hire employees.
Cons:
- Critics worry about the impact on the national deficit.
- Sole proprietors and other non-corporate structures may not see proportional benefits.
Deregulation
Deregulation was a hallmark of Trump’s initial term. In an effort to spur economic growth and encourage investment, his administration rolled back over 1,500 rules across industries. One of the most notable was the energy sector, where deregulation allowed oil and gas exploration to increase domestic energy production and reduce dependence on foreign oil. The result was cheaper gas prices, which directly benefited small businesses in delivery and transportation industries. If Trump continues to minimize compliance burdens, small businesses in sectors like energy, agriculture, and manufacturing will again benefit.
Pros:
- Lower compliance costs, especially for startups.
- Simplified operations in heavily regulated industries.
Cons:
- Some regulations, particularly those related to labor and environmental protections, are considered necessary for long-term sustainability and public welfare.
Tariffs and Trade Policy
Trump’s trade policies in his first term, including tariffs on goods from China and other countries, had a mixed effect on small businesses. The goal of imposing tariffs is to protect domestic manufacturers, but many small businesses that rely on imported materials faced higher costs. Biden kept Trump’s tariffs on Chinese imports, and if Trump continues them into his second term, there could be a continuation of supply chain challenges and increased prices for certain goods.
Pros:
- American manufacturers may gain a competitive edge.
- Encourages investment in American supply chains.
Cons:
- Higher costs for imported materials could squeeze profit margins for U.S. manufacturers.
- Potential retaliatory tariffs by other countries could limit export opportunities for small businesses.
Access to Capital
Lending through the Small Business Administration (SBA) saw a notable increase during Trump’s first two years in office. By streamlining loan processes and promoting programs like the 7(a) Loan Program, his administration helped many small businesses secure funding. Looking forward, Trump could push for expanded SBA lending programs, which would make it easier for entrepreneurs to access the capital needed to grow.
Pros:
- Easier access to financing for new and existing businesses.
- Potential for strong economic growth at the community level.
Cons:
- Over-reliance on debt financing could lead to financial vulnerability during periods of economic uncertainty.
