The Trump administration unveiled an ambitious overhaul of federal tax laws yesterday that it is touting as the “largest tax cut for individuals and businesses in U.S. history.”
Republicans on Capitol Hill seem cautiously optimistic about the plan even though it was immediately attacked by the hateful class-warfare-mongering Left.
House Minority Leader Nancy Pelosi (D-Calif.) predictably described the plan as a “wish list for billionaires,” in a statement.
“The same Trickle Down Economics that undermined the middle class are alive and well in the President’s tax plan,” she said, without noting that the bogus concept of “Trickle Down Economics” was invented by the Left to mock market-based economics. “True to form, President Trump’s tax plan is short on details and long on giveaways to big corporations and billionaires.”
One of the House of Representatives’ most acute sufferers of Trump Derangement Syndrome, Rep. Ted Lieu (D-Calif.), tweeted that the plan is “Voodoo Economics on steroids. If you believe in magic, unicorns or Batman, this plan is for you.”
Senate Minority Leader Chuck Schumer (D-N.Y.) said the plan would make “life easier for the wealthy and special interests” and “harder for middle class and lower income Americans.”
“This plan will be roundly rejected by taxpayers of all political stripes,” Schumer said. “The American people, once again, are learning that what President Trump promised in his campaign and what he’s doing are totally at odds.”
Sen. Ron Wyden (D-Ore.), ranking member on the Senate Finance Committee, attacked the plan. “Light on details for people who work for a living, yet very detailed for the elite,” Wyden tweeted. “No estate tax, cut in capital gains and cut in top rate? All an #EliteGiveway. And yet the Trump team couldn’t tell you what the tax plan means for the typical American family. Self-serving & elitist.”
Socialist Sen. Bernie Sanders (I-Vt.) said the plan would help big businesses and the affluent. “We have a rigged economy designed to benefit the wealthiest Americans and large corporations,” Sanders huffed on Twitter. “Trump’s tax plan would make that system worse.”
GOP congressional leadership issued a lukewarm, open-ended endorsement of the tax reform plan. “The principles outlined by the Trump administration today will serve as critical guideposts” as lawmakers and the White House work on tax changes, House Speaker Paul Ryan (R-Wisc.) and Senate Majority Leader Mitch McConnell (R-Ky.) said.
President Trump himself did not issue a statement on the tax overhaul yesterday but on the campaign trail last summer, he previewed his tax proposals.
The candidate promised “the biggest tax revolution since the Reagan tax reform, which unleashed years of continued economic growth and job creation.” He called for “an across-the-board income tax reduction, especially for middle-income Americans,” that will create millions of new good-paying jobs. “The rich will pay their fair share,” he said, “but no one will pay so much that it destroys jobs, or undermines our ability to compete.”
The current system cries out for reform.
According to the White House, the current federal tax code approaches four million words in length. Since 2001, the tax code has faced nearly 6,000 changes, more than one per day. The National Taxpayers Union estimates that Americans spend just under 7 billion hours a year at a cost of more than $262 billion on compliance and record-keeping expenses.
The new plan would provide relief to families by reducing the current seven tax brackets (top rate of 39.6 percent) to three tax brackets of 10 percent, 25 percent, and 35 percent. On the campaign trail in August last year, Trump proposed brackets of 12 percent, 15 percent, and 33 percent. A summary released by the White House notes that “[e]ven President Obama proposed lowering the business tax rate to 28 percent to help spur economic activity.”
The plan would double the standard deduction “so that a married couple won’t pay any taxes on the first $24,000 of income they earn,” said Director of the National Economic Council Gary Cohn at a televised White House media briefing.
“So, in essence, we are creating a zero tax rate — yes, a zero tax rate — for the first $24,000 that a couple earns.” Doubling the deduction also “leads to simplification because far fewer taxpayers will need to itemize, which means their tax form can go back” to consisting of a one-page document. Currently, the IRS offers 199 individual income tax forms and 235 business tax return forms.
Business Insider reports the plan “would do away with itemized deductions on individuals’ tax returns except for the mortgage and charitable giving deductions.”
The plan would provide tax relief for families with child and dependent care expenses. A White House summary didn’t elaborate but Market Watch reports that the “new child care tax benefits proposed by the president include an expansion to the earned income tax credit for lower-income families, a deduction for higher-income families, plus the introduction of a child-care savings account.” The Earned Income Tax Credit (EITC) is a welfare program but some libertarian economists favor it, claiming it provides incentives for work.
Trump’s plan would repeal the Alternative Minimum Tax (AMT), the death tax, and the 3.8 percent Obamacare tax that applies to small businesses and investment income.
The corporate income tax rate would be slashed to 15 percent.
Cutting the corporate income tax rate is long overdue. The U.S. leads the world with a 39.1 percent top statutory corporate tax rate, followed by Japan (37.0 percent), Argentina (35.0 percent), South Africa (34.6 percent), and France (34.4 percent). In terms of the effective rate, that is, what companies actually pay after various deductions, the U.S. still fares poorly with the fourth-highest rate in the world (18.6 percent). Argentina has the highest effective rate (22.6 percent), followed by Japan (21.7 percent), and the U.K. (18.7 percent). In the fifth position is Brazil (17.0 percent).
A slashed corporate rate would encourage businesses to stay stateside or relocate here, boosting investment and creating jobs. High taxes discourage business startups and have “spurred business owners to legally structure their U.S.-based firms so corporate rates do not apply,” according to Market Watch. “More and more companies incorporate as partnerships or so-called S corporations that allow them to pay taxes at lower individual rates.”
The article continues, stating that “the percentage of business income subject to the corporate rate has dropped to 62% in 2011 from 87% in 1981, the Congressional Budget Office found in a 2015 study.”
Secretary of the Treasury Steven Mnuchin said the tax reform plan would also end the taxation of American companies’ worldwide income. It would be replaced by a territorial tax system “which means that U.S. companies will pay income on income related to the U.S. … U.S. companies would not be subject to worldwide income, which has made them uncompetitive.”’
On the eve of the tax reform plan’s release, famed economist Art Laffer made it clear he was bullish on cutting America’s sky-high corporate income tax rates because doing so would kick-start economic growth.
“We would bring people back and we would create jobs without tariffs and without protectionism,” Laffer told the New York Times.
“I’m a big believer in using honey rather than vinegar, and incentives are much better. I think it would be a flood of businesses coming back in short order, and it would stop inversions” — when businesses relocate overseas for tax reasons.
“It’s a slam dunk,” Laffer said. “It’s a no-brainer.”
If Trump can corral enough Republicans to vote for the plan in Congress, that is.