Trump’s Tax Reform Plan and America’s Future
Despite the country’s uncertainty and anxiety, Republicans want to cut taxes by $1.5 trillion. Can this plan boost the economy of “middle-class?” Is this really the plan that Trump calls “pro-growth, pro-jobs, pro-worker, pro-family?”
President Trump has recently revealed a new tax reform framework Wednesday (Sept 27th) that promises a “historic tax relief.” Trump announced to a group of Democrats and Republicans that this new framework would lead the economy to grow up to 6% a year. However, even his own economic advisers doubt such relief would happen anytime soon.
The plan is as follow:
- 20% corporate tax rate — The United States’ corporate tax rate today is 35%. Trump has originally promised a 15% corporate tax rate during his presidential campaign. For the first time since his presidency, Trump backed down from his promises because 15% was way too low to meet the required federal budget.
- 25% tax rate for pass-through businesses — People in small businesses can prevent paying at an individual rate, and can pay at the pass-through rate.
- 12% bottom individual tax rate — the new plan decreases tax brackets to just three, with the lowest rate being 12%. People now in 15% margin can fall here while people now at 10% rate could have an increased rate.
- 35% top individual tax — Currently, the top individuals pay tax at 39.6%, but a massive decrease will apply.
- A one-time repatriation tax — all US-owned companies overseas would be taxed at a one-time rate in order to increase profits to bring home; the officials do not have an exact rate but is looking at 10%.
- Increased child tax credit — Children under 17 now get approximately $1,000 child tax credit refundable, but the credit would “substantially” increase.
- A larger standard deduction — To avoid increasing tax for those in the 10% tax bracket today, the standard deduction would increase $12,000 ($6,350 today) for individuals and $24,000 ($12,700 today) for married couples.
- Estate tax elimination — tax that only applies to inherited assets totaling $5.49 million or more, will be eliminated.
Check out the full plan here.
Big corporations and high-income individuals look forward to receiving the tax reform, for the main benefit of the new plan includes higher savings for the top 1%. However, does this new tax reform really cover what society needs? Today, the U.S. government is already running a deficit — back in 2016, the United States federal budget was $3.3 trillion, most of them from corporate and individual income taxes. The spendings, however, outnumbered federal revenue by $600 billion in which mandatory spendings included social security, Medicare, and Medicaid.
Many officials believe that the main dispute of the new plan comes from the tax reduction of high-income individuals along with the elimination of estate tax. Around 48% of the federal government revenue comes from individuals in which majority is contributed by the top 20%. It is highly unlikely that this tax reform is made to boost America’s economy as a whole. The federal government must take a closer look at the history of tax cuts for the rich.
As shown on the graph above, employment rate and GDP growth were much weaker under Bush’s tax cuts for the highest-income households. Furthermore, in 2012, Governor Sam Brownback promised Kansas’ job and economic expansion in small businesses by reducing the tax rate to 3.9% from 6.4% for the highest incomes. The federal government’s data revealed Kansas had lost 9,400 jobs, and 2.5% drop in average hourly earnings as a result of this tax decrease.
In addition, the elimination of estate tax would also blow a big hole in public finance. The estate tax is “the most progressive part” of the tax code; researchers state that this repeal would cost around $269 billion over the next ten years, eventually widening deficits. Howard Gleckman, a senior fellow at the Tax Policy Center believes, “it is implausible that this plan would permanently boost the economy. Trillions of dollars in lost revenue would add to the federal debt, raise interest rates, and make it more costly for businesses to invest.”
For both younger and older generations, the most common concern from the tax breaks and federal deficit is social welfare. The greatly reduced tax collection would cut domestic spendings on social welfares on higher education, retirement security, and healthcare plans. Only if the lower-income and middle-class individuals receive quality education and healthcare, the chances of escaping poverty cycle and having a more productive market would rise, soon bringing America’s economic upswing to the surface.
Remember: sacrificing low-income individuals to cover the tax cuts of the affluent is the last thing the Congress has to offer. Do not let history repeat itself.