Trump proposes sharp tax cuts for companies and individualsFriday, 28 April 2017
Yesterday, President Donald Trump proposed large cuts in corporate and personal taxes with the aim of national economic growth and bringing jobs and prosperity to America's middle class. He is the first president after Reagan who proposes such large simplifications to the current complex US tax system. Although it is at this point not a complete reform, President Trump puts an important step in simplification of the US tax system.
Proposed changes in a nutshell
The plan would reduce the number of personal income tax brackets to three from seven: rates of 10 percent, 25 percent and 35 percent. It would double the standard deduction for married couples to $24,000, while keeping deductions for charitable giving and mortgage interest payments. The administration plans to provide tax relief for families with child care expenses, too, although the specifics have yet to be included. Taxes paid by richer American citizens to partly subsidize Obamacare will be deleted.
On the corporate side, the top marginal tax rate would fall from 35 percent to 15 percent. Small businesses that account for their owners' personal incomes would see their top tax rate go from 39.6 percent to the proposed corporate tax rate of 15 percent.
There has been a lot of discussion on the initial idea to levy a tax on all imported goods in the US. However, resistance of big importers like Walmart seems to be successful, because president Trump has pushed this idea aside as it was too complicated in his view.
The plan would also reduce investment and estate taxes, helping the wealthy. But administration officials said several other tax breaks that help well-to-do taxpayers would be eliminated and the plan would largely help the middle class.
The White House has yet to spell out how much of a hole the tax cuts could create in the federal budget, maintaining that the resulting economic growth would eliminate the risk of a soaring government deficit, if not actually cause the red ink to diminish.
Still, the proposal leaves a series of open questions. It is currently unclear how this plan will be financed.
Administration officials intend to hash out additional details with members of the House and Senate in the coming weeks for what would be the first massive rewrite of the U.S. tax code since 1986.
Consequences for non USA countries
Although US companies rarely pay the highest rate, the US corporate income tax rate of 35% is very high internationally. Trump is proposing a 15% corporate income tax rate. With this announcement, the US starts its competition internationally to lure companies into the US with tax benefits. The US corporate income tax rate will be lower than the Dutch (25%), the UK (20%) corporate income tax rates and on the same level as neighboring Canada.
Trump wants to switch the ' global ' tax system for the European ' territorial ' system. US multinationals currently pay taxes in the country where they are active plus an additional share in the US in case profits will be returned to the US. To prevent this additional taxation the profits are often shifted via other countries and finally parked in tax havens. President Trump now offers companies the possibility to bring those billions into the US at a rate of 10%. The government hopes that this money will be invested in the US economy.