President Donald Trump on Wednesday delivered a new round of promises of a "pro-growth, pro-jobs and pro-American" tax reform, including a 15% corporate tax rate. However, sceptics say his proposals do not match the rhetoric, and that they may be impossible to implement all at once.
President Trump gave a speech in Springfield, Missouri, on Wednesday, where he presented his plans for overhauling the federal tax code. Similar to the speech he gave in April this year, the president was short on specifics, but stuck to four priorities: simplifying the tax code and closing loopholes that mainly benefit the wealthiest, lowering the corporate tax rate to 15% to make the US a more attractive place to do business, introducing a tax relief for middle-income families and repatriating trillions of foreign profits.
Trump said the average business tax rate among developed nations has fallen from 45% to less than 24% over the past 30 years, and that some countries were doing "really well" compared to the US.
"They are taking us, frankly, to the cleaners. So we must lower our taxes," Trump said. "We have totally surrendered our competitive edge to other countries. We're not surrendering anymore."
While the president discussed repatriating overseas profits and simplifying the tax system, he did not provide any details around repatriation rates or a switch to a territorial tax system from the current worldwide tax system. "Most tax professionals would say in order for the US to be competitive, a lower tax rate would have to be combined with the adoption of a territorial tax system," said Nancy Manzano and Bernadette Pinamont, tax director and chief tax officer at Vertex. "Switching to a territorial tax system would also fall under the president's first principle which was a 'simple, fair and easy to understand tax code'," they added.
Policies "tax cuts masquerading as jobs creation"
Trump is striving to recover from his failed attempt at repealing Obamacare, a humiliating defeat for the president. He is now hoping to make a comeback with his tax reform, but Republican congressional leaders and the White House have not yet reached an agreement on the specific details of the reform plan.
Alan Essig, executive director of the Institute on Taxation and Economic Policy (ITEP), said the Republican Party's plan for overhauling the tax code was a tax cut for corporations and the wealthy masquerading as strategy for jobs creation and economic growth. ITEP previously analysed Trump's April speech and found that nearly half of Trump's proposed tax cuts would go to millionaires, or 0.5% of the population.
The case for corporate tax cuts was "just as weak", Essig said. "GOP leaders claim the corporate tax rate is too high, yet most profitable corporations pay an average effective rate of 21.4%, which is substantially less than the 35% statutory rate. All this is a very wonky way of saying President Trump's tax proposals would largely benefit corporations and the wealthy even though the White House claims their tax plan would benefit the middle-class," he said.
"If lawmakers truly wanted to create good jobs and look out for the middle class, they would not peddle policies that would redistribute wealth upward via the tax code."
The above article was published on www.internationaltaxreview.com on 31 August 2017 and has been republished with the approval of the Publisher.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.