The controversial US president Donald Trump is about to introduce his game-changing tax reform plan, or, as he calls it, something “phenomenal in terms of tax”.
During the election campaign and immediately after the elections in November 2016, president Trump signalled about his plans to cut corporate tax rates in order to help businesses that currently struggle with high corporate taxes, boost US economic growth, and support middle class families.
According to the United States Secretary of the Treasury, the tentative deadline for revealing more details about Trump’s prospective plan is August 2017. However, president Trump is more liberal about the date of the big reveal. Before introducing his tax reform, he plans to change the US healthcare system. Trump claims: “I don’t wanna put deadlines. Healthcare is gonna happen at some point. Now, if it doesn’t happen fast enough, I’m gonna start taxes. Tax reform and tax cuts are better if I do healthcare first.”
So, what details about Trump’s corporate tax reform are known by now?
From the document “The Goals Of Donald J. Trump’s Tax Plan” published on Trump’s website and a number of brief announcements made about the prospective tax reform in media, it can be concluded that at least three directions will be taken in order to create a better fiscal climate in the US.
Firstly, the corporate tax rate may be reduced to a more competitive rate of 15%, 20%, or 28%, whereas, at present, US companies are subject to a corporate tax rate of about 35%. On the other hand, in order to protect the US internal market, additional taxes on imports of goods may be introduced. For example, The Washington Post reported that, to raise more revenue, the carbon tax and the value added tax (VAT) could be implemented in the US. Another alternative to boost the US internal market could be the introduction of the so-called border adjustment tax, which is levied on the goods that are being imported into the country and sold domestically. Exported goods are exempt from this type of tax.
Secondly, the personal tax rates of average American families could be cut drastically. At present, the average all-in personal tax rate in the US varies between 14% and 26% (OECD data), depending on a person’s marital status and the number of children in the family. The document “The Goals Of Donald J. Trump’s Tax Plan”, published before the elections, claims that the income tax of more than 73 million households will be eliminated. For example, singles earning less than USD 25,000 or married couples that jointly earn less than USD 50,000 will not owe any income tax after the reform.
Thirdly, the US administration may introduce simplifications of the US tax code by reducing the number of the income brackets from the current 7 to 4, thus “providing the lowest tax rate since before World War II”.
The fragmented information available to the public at present cannot provide an overall comprehensive view of the US tax reform. Thus, only the official presentation of Trump’s new tax plan will give more clarity about the fiscal future of the US.