On April 27, Beijing time, the Trump administration released the core outline of the “largest” tax reform plan in U.S. history.
The outline of the tax reform plan is listed on one page, including tax cuts for businesses and individuals. Tax reform hot spots such as cutting corporate taxes by 20%, imposing a one-time 10% tax on overseas profits of US companies, reducing personal taxes, simplifying the tax system, etc. are all on the list.
The tax reform outline does not mention the imposition of border taxes on imported products, but it does include a territorial tax system (Territorial Tax System), which has a similar purpose and is to gain more room for American companies to perform.
U.S. Treasury Secretary Steven Mnuchin and National Economic Council Chairman Gary Cohn briefly read out the tax reform outline, expressing their hope that tax reform will help the U.S. economic growth return to 3%. However, we can only respond that many of the details of the tax reform are still under discussion and have yet to be formulated.
At Trump’s request, the White House released this tax reform outline before the 100th day of his inauguration. But the outline is far from a complete tax reform plan. The Trump administration also has not set a deadline for passing the legislation.
The tax reform outline shows that the Trump administration will hold hearings throughout May to collect taxpayers’ opinions, and at the same time work with the House and Senate to complete a large-scale tax reduction plan and ultimately strive to obtain Congress passed.
Cut corporate and personal income taxes
The one-page tax reform outline lists four goals: to develop the economy and create millions of jobs; to simplify complex tax regulations; to reduce the tax burden on American families, especially middle-income families; to reduce the U.S. corporate tax from the global One of the highest cuts to one of the lowest globally.
The outline proposes three major items in terms of personal tax reform: First, the seven levels of personal income tax will be combined into three levels: 10%, 25%, and 35%, and the highest level will be lowered from 39.6% to 35%. The personal tax deduction is doubled to $24,000. Provides tax benefits to families with children and dependent members.
The second is to simplify tax regulations: revoke tax breaks that mainly benefit the wealthy; and eliminate all personal tax deductions except mortgage interest and charitable tax deductions. Removal of death tax on estates.
The third item is to repeal the 3.8% Obamacare tax to reduce the tax burden on small businesses and investment income.
In terms of corporate tax cuts, there are four main contents: cutting corporate tax from 35% to 15%; gaining more space for U.S. companies through the territorial tax system; and if U.S. companies bring back overseas income, A one-time 10% tax is levied. Revoke tax benefits for special interests.
Making American companies more competitive
Mnuchin said he hopes to make American companies the most competitive in the world through tax cuts. The tax reform plan hopes to stimulate U.S. economic growth and attract businesses and profits back to the United States.
Before announcing the tax reform outline that day, Trump criticized the trade deficit on Twitter: In 2016, the United States recorded the lowest economic growth in five years, with GDP growing only 1.6%. The trade deficit seriously harmed the economy.
The tax reform plan cuts the corporate tax rate by 20%. Trump fulfilled the promise he made in his first appearance in Congress: “So that American companies can thrive without fear of competition, no matter where they are and no matter who they compete with.”
However, according to estimates by a US neutral analysis agency, if the tax reform is implemented, it will reduce the revenue of the federal government by more than 2 trillion US dollars in the next ten years.
Originally, in conjunction with the reduction of corporate taxes, a 20% border tax was levied on imported products to make up for the loss of fiscal revenue. The border tax also hopes to put pressure on overseas companies to return to the United States for production. Otherwise, when products produced overseas by American companies return to the United States, border taxes will be imposed. U.S. House Speaker Paul Ryan proposed this plan on behalf of Republicans, but it never received explicit support from Trump.
Although this tax reform plan does not mention border taxes, it does list the territorial tax system. Its purpose is also to gain more room for American companies to perform. The Trump administration responded that this content is still being discussed and formulated.
Massive tax cuts and massive deficits
Trump’s tax reform may not be the largest tax cut in U.S. history. According to estimates by the Public Broadcasting Corporation (PBS), the scale of Trump’s tax cuts is approximately equal to 2.6% of U.S. GDP. The scale of President Reagan’s tax cuts in 1981 was approximately 2.89% of the US GDP at that time, and the scale of President Truman’s tax cuts in 1945 was 2.67% of the US GDP. By this calculation, Trump’s tax reform ranks third.
However, when Reagan and Truman implemented tax reform, they did not take over Trump’s heavy debt burden. Once the tax reform is implemented, it will open fiscal loopholes.
Trump officials such as Treasury Secretary Mnuchin have said that they are counting on the United States to achieve 3% economic growth to provide financial support for this tax reform. The real economic growth rate of the United States in 2016 was 1.6%.
The fiscal deficit will also become an obstacle for tax reform to pass Congress. If Trump wants to implement legislation on tax reform, he has two options: First, win the support of Democrats. The second is to initiate special procedures. As long as the 52 Republicans in Congress cast 51 votes, the tax reform bill can be passed. However, if the tax reform bill will increase the fiscal deficit in 10 years, it cannot be approved through this channel. According to institutional analysis���The tax reform bill will inevitably increase the fiscal deficit.
As for Democrats, according to CNN, they said they would not support the tax reform bill without reciprocal returns. At the same time, Democrats accused Trump of using the new bill to exempt himself from paying millions of dollars in taxes. Trump’s tax reform announced: reducing U.S. corporate taxes to the lowest in the world
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