On Wednesday, President Trump announced his tax reform plan, which is expected to cut taxes for the middle class and slash the corporate tax rate to 20%. The Trump administration, the House Ways and Means Committee, and the Senate Finance Committee will jointly release this tax proposal in the coming weeks.
A senior administration official said, “It is a relatively rare event to have these three groups working so well together before their legislative text and this says a lot about presidential leadership and the desire to get this done. Having these groups working so well together is a significant step forward towards our goal.”
The tax plan is said to be guided by only a few simple principles; cutting taxes for middle-class Americans, making the tax code easy to understand, and making tax policy fair to all. Trump went to great lengths in in announcement speech to explain how this tax plan would cut taxes for small businesses, creating more jobs and higher wages. Of course, the plan is also geared towards reversing “offshoring,” – where companies leave the US for better tax environments – by bringing back trillions of wealth in from overseas back to the United States.
The centerpiece of the plan is a call to lower the corporate tax rate to 20%, which is below the 22.5% average of the industrialized world. The corporate alternative minimum tax will be eliminated, and to add on the benefits corporations would be allowed to write off or expense the cost of the new investments immediately which would last for 5 years – encouraging massive and instant investment in American manufacturing.
A senior administration official said, “The focus is very much on growth, so that we can keep more jobs in the U.S., bring more jobs back to the U.S., and see an increase in wages and create a level playing field for U.S. companies compared with competitors around the world. On the small business side we are going to limit the maximum tax rate applied to small businesses to 25%.”
The official further explained, “On the individual side, the first thing we’re doing is we’re creating a larger zero tax bracket. Thirty percent of taxpayers itemize, the other 70 percent claim a standard deduction, and that standard deduction is going to nearly double in size to 12,000 for individuals and 24,000 for married taxpayers.”
The official explained the bill “The reason they would do that is to make sure that we achieve our goals of making this a middle class tax cut that is at least as progressive as the current system and that doesn’t shift the tax burden from higher income to lower income households,” while discussing the seven tax brackets reduced down to only 3 brackets. Though room and flexibility for the fourth bracket is left for the committees.
“We think that is going to help bring more investment and more income back to the U.S. rather than keeping it offshore, and it will help level the playing field for our companies so they can better compete with foreign companies that already have that kind of tax treatment,” the official said.
As part of the transition to this territorial system, profits based already in overseas would have a onetime tax on those profits.