“SIMPLE, EASY, AND FAIR FOR ALL AMERICANS”
Speaking on Wednesday, President Trump revealed his tax plan, pledging to make taxes “simple, easy, and fair for all Americans”. However, with no suggestion of the plan’s cost being offered, and with seemingly many benefits present for the wealthy but few for lower- and middle-income families, it is possible to question the potential of the plan.
Written by the ‘Big Six’, the plan is based on four main principles, with these being:
- Making the tax code simple, fair, and easy to understand;
- Giving American workers a pay rise;
- Making America the ‘jobs magnet of the world’, by ‘levelling the playing field’ for American businesses and workers;
- Bringing back trillions of dollars currently being kept offshore to reinvest in the American economy.
MAKING THE TAX CODE SIMPLE, FAIR, AND EASY TO UNDERSTAND
The first of these principles would chiefly be achieved by reducing the number of income tax brackets from the current number of seven to three, with these being 12%, 25%, and 35%. The current top rate is 39.6%, and the current lowest rate is 10%, though proponents of the plan were keen to note that families who would see their tax rate increased from 10% to 12% were expected to be better off under the new plan due to a larger standard deduction (with this amount having been approximately doubled to $12,000 for single filers, and $24,000 for married couples filing jointly), an increase in child tax credit (being increased from $1000 to a currently undisclosed amount), and other additional reliefs, such as the introduction of a $500 credit for non-child dependants (such as the elderly). The plan also allows the future creation of an additional top rate for highest-income taxpayers, with President Trump claiming, “This reform will protect low-income and middle-income households, not the wealthy and well connected”.
MAKING AMERICA THE 'JOBS MAGNET OF THE WORK', BY 'LEVELLING THE PLAYING FIELD' FOR AMERICAN BUSINESSES AND WORKERS
The third of the plan’s principles will be achieved through the introduction of tax changes for a variety of American businesses, though focused mainly on small- and medium-sized ones, with the President claiming that his reforms “will be the lowest top marginal income rate tax for small and midsize businesses in this country in more than 80 years”. This suggested new maximum top tax rate was revealed to be 25%, and is intended to be placed on small and family-owned businesses (conducted as sole proprietorships, partnerships, and S-corporations), and ‘pass-through’ businesses – which currently account for 95% of all businesses in the US and for a majority of the government’s corporate tax revenue – that are presently taxed art the rate of their owners.
The plan also calls to reduce the rate of corporation tax to 20% from its current rate of 35%. This is below the 22.5% worldwide average, and thus is expected to help make large American companies more competitive with their international counterparts. Large businesses are also expected to benefit from the fourth principle of the plan, under which both the US and foreign profits of US multi-national corporations will be taxed at a reduced rate, in order to prevent profits being taken to tax havens.