Latest posts by Jesse Hathaway (see all)
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Here’s some potentially bad news: According to the June 2017 National Association for Business Economists’ (NABE) report, a survey of professional business forecasters, the Trump administration’s plans to overhaul the federal tax system isn’t likely to happen until 2018.
If true, it would be a serious mistake on the part of the administration and Congress. Every day that goes by without a tax reform bill is a day hard work and consumer saving is punished and investing is discouraged.
Thus far, no lawmakers in Congress have stepped forward with legislation to carry out President Donald Trump’s promises of “historic” reform, although the president’s advisers did release a memorandum in April providing checkboxes for lawmakers to use when drafting proposals.
More specifics will be forthcoming as Congress works with Trump to design a bill, but what we know so far suggests the plan will be solid.Trump’s tax plan would reduce the number of income tax brackets from seven to three, similar to how President Ronald Reagan’s Tax Reform Act of 1986 reduced the number of tax brackets from 15 to four. By flattening the tax structure, there would be fewer effective “penalties”—in the form of higher tax rates—for being successful and earning greater amounts of money.
In addition to flattening taxes, Trump’s outline includes reducing tax rates, allowing people to keep more of the fruit of their labors. The specifics of the three brackets have not yet been determined, but we do know earners in the top bracket would pay 35 percent, and lower-income earners would pay either 10 percent or 25 percent.
Reagan’s Tax Reform Act of 1986, a reform package that cut the top tax rate from 50 percent to 33 percent, created economic conditions that led to the prosperity of the 1990s. If lawmakers and Trump reduce the top tax rate from its current 39.6 percent to the targeted 35 percent rate, they would once again set the conditions for prosperity to take root in America.
Dithering and delaying on corporate tax reform has real costs. Because of America’s arcane rules on how multinational businesses’ profits are taxed, many businesses are incentivized to move their headquarters out of the United States, taking untold billions of dollars in tax revenue with them.
Out of the 34 nations participating in the Organisation for Economic Co-operation and Development, the United States taxes businesses at the highest rate, about 35 percent, and is one of the only nations in the world to tax income earned in other countries. In fact, only six other countries in the entire world use such a ridiculous and destructive policy.
America’s current corporate tax rules encourage businesses to merge with competitors headquartered in other countries and move in with their new partners, a living arrangement perhaps best illustrated by U.S. restaurant staple Burger King’s 2014 marriage with Canadian restaurant chain Tim Horton’s.
Trump’s tax plan, as laid out in the April memorandum, would only tax profits earned in the United States and allow the “repatriation” of profits stuck overseas with a one-time tax on homebound profits. Going forward, businesses would pay 15 percent on profits earned domestically, making it worth the effort required to do business in the United States—and to continue to do business here in the future.
Congress and Trump need to cut through the day-to-day noise that has deafened the inhabitants of Washington, D.C. for decades on this important issue and carry out the tax reforms promised to voters.
[Originally Published at American Greatness]