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Donald Trump to Drop US Corporate Tax Rate to 15 Percent

Donald Trump to Drop US Corporate Tax Rate to 15 Percent

US President Donald Trump will launch this week his administration’s tax reform proposal, which is expected to slash the country’s corporate tax rate to 15 percent.

Despite fears that this move might increase the country’s budget deficit and national debt, the Trump administration plans to lead the largest tax reform since President Ronald Regan’s more than thirty years ago.

Donald Trump told the Associated Press last week that this proposal is “maybe the biggest tax cut we've ever had.”

As explained by the US News & World Report, Trump believes “a 15 percent corporate rate would make American companies more competitive internationally and potentially spur the repatriation of corporate profits sitting idle in offshore bank accounts.”

Furthermore, The New York Times reports that “the 15 percent rate would apply both to corporations, which now pay 35 percent, and to a broad range of firms known as pass-through entities — including hedge funds, real estate concerns like Mr. Trump’s and large partnerships — that currently pay taxes at individual rates, which top off at 39.6 percent.”

Part of this plan also calls for a one-time 10 percent repatriation tax to encourage American firms to repatriate their funds stashed offshore.

 

Will Trump’s Corporate Tax Plan Ramp Up the Budget Deficit?

Will Trump’s Corporate Tax Plan Ramp Up the Budget Deficit?

Secretary of Treasury Steven Mnuchin dispelled concerns of a hike in the US’s budget deficit as a result of these massive reforms, telling the press earlier this week that the tax plan would “pay for itself” by boosting the economy.

According to Bloomberg, Mnuchin also signaled that President Trump believes “the U.S. can achieve sustained economic growth of 3 percent or greater, which would pay for the tax cuts along with “trillions of dollars” brought in from offshore havens.”

However, a recent Tax Foundation study (as explained by Alan Cole) claims “a corporate income tax rate cut to 15 percent would reduce federal revenues by about $2 trillion over the same time period, according to the Tax Foundation model. In other words, it would reduce federal revenue by about 5 percent.”

Different Reactions to Trump’s Corporate Tax Reform Proposal

Different Reactions to Trump’s Corporate Tax Reform Proposal

Several pundits downplayed this proposal’s overarching significance, saying that in the end it might just consist of a series of tax reductions similar to those promoted by George Bush in 2001.

Speaking to Reuters, Chris Krueger, an analyst at Cowen & Co, said, “We will get some vague benchmarks about rate levels... with likely no detail on how to finance those reductions except for the assurance that the growth projections will take care of it.”

Additionally, certain civil society groups criticized President Trump for siding with big business.

“If Trump were on our side, he'd make the wealthy and big corporations pay their fair share of taxes so that the economy could work for all of us, not just the wealthy few,” said Frank Clemente, Executive Director of Americans for Tax Fairness.

“In trying to slash taxes for ‘pass through’ business entities, Trump is seeking to dramatically reduce his own tax bill,” Clemente added.

John Cassidy of The New Yorker was a lot less kind, writing this week that while Trump might think he’s working on a proposal to boost the economy, “in actuality, he is cooking up a fiscally irresponsible gift to plutocrats.”

On the other hand, several conservative groups showed their support for this move.

Stephen Moore, an economist at the Heritage Foundation, said, “Our analysis has always shown that of all the economic bang for the buck from all of the changes that were in the original Trump plan, you get the most economic juice from cutting the corporate rate.”

At the end of the day, however, many believe that it would be very difficult for President Trump to get this proposal passed by Congress considering the massive tax reductions listed.

Roberton Williams, a fellow at the Tax Policy Center, highlighted the proposal’s high cost, saying, “It’s very expensive, and that’s a problem…it’s a real heavy lift to get the revenue necessary to pay for these things.”

This prohibitive cost “makes it a lot harder with the budget hawks in Congress,” Williams added.

Additionally, as Politico explained, “The main problem, political analysts and tax experts say, is that Republicans are caught between two irreconcilable models for enacting major tax changes,” the one to be released by Trump and another preferred by Republicans like House Speaker Paul Ryan, which sets forth “a new border tax to generate over $1 trillion in revenue over 10 years to pay for a cut in the top corporate rate to 20 percent from 35 percent.”

Do you think this tax proposal is feasible? Let us know what you think!

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