Trump’s proposed tax reform
In the last week of September 2017, Donald Trump’s administration released a comprehensive synopsis of proposed changes to the tax code. On October 26, 2017, budget resolution passed by the House of Representatives cleared the path for the Trump Administration’s tax reform plans. The House Committee on Ways and Means aims to unveil a draft tax plan on November 1, 2017.
The Trump administration aim to slash taxes paid by corporations and to simplify the federal tax code. However, the framework is yet to be clarified.
As the above presentation by Statista shows, Trump intends to simplify the present tax code by reducing the number of current income tax rates from seven to three (35, 25 and 12%).
Rationale behind the tax plan
Let’s try to understand the logic behind the tax plan. According to Standard-Examiner, “lowering taxes on people will put more money in their pockets. If they go out and spend that extra cash on groceries, gyms or video games, etc., it bumps up private-sector growth. The consensus among economists is tax cuts for individuals help somewhat, but the boost is normally short-lived. Plus not every $1 of tax cuts makes it into the economy because some people, especially the wealthy, end up saving the money instead of spending it.” Another rationale is that lowered taxes on businesses will encourage corporations and businesses to stay in the United States (QQQ), which is likely to generate extra cash to be reinvested in businesses, job creation, and higher wages.