The Trump administration just announced a tax plan that is eye popping to say the least. The plan includes a number of proposals which include:
- slashing the top business tax rate from 35% to 15%
- reducing the 7 individual tax brackets to 3, which are 10%, 25% and 35% each
- doubling the standard deduction from $12,400 for married couples to around $25,000
- Introducing territoriality to the U.S tax code so that US citizens only pay tax on the money they make in the U.S rather than being taxed on income they make anywhere in the world.
- Allowing U.S. companies to repatriate tax stowed abroad for a one time 10% tax.
There’s several more proposals which were drawn up and which the administration intends to use as a launching spot for it’s negotiations with Congress.
My thoughts on this are two sided. As a business person and investor, obviously, I love this. It would be a huge boon to companies like Apple and Google who have massive cash holdings abroad. It would also be one of the biggest tax cuts for all American individuals and businesses, which should be very very stimulative for the economy. I want it. I’m doing cartwheels for it. Consumer discretionary spending would explode if this went into effect. It would be, to use a modern colloquialism, lit.
BUT. I’m not so naive to think that Congress would easily let this pass. For one, ironic as it seems that the people’s Congress would be the one fighting the White House on a massive tax cut to the people, the truth is that a lot of the tax loopholes and exemptions being eliminated would make life difficult for several constituencies of the members of Congress. The Democrats will not support eliminating the Estate tax, something Trump proposes. Moreover, a tax cut of this size must mandatorily include a dramatic roll back of the scale of government. Welfare programs will go poof. A lot of government largesse will go poof. Not everyone wants that. For better or worse, America represents a huge welfare empire, and empires cost money to run. Republicans might be willing to reduce the size and scope of government, but Democrats will fight them tooth and nail. For good reasons too, considering that when it’s time to axe government boons, the poor always seems to be at the front of the line. Farm subsidies, oil industry subsidies, billion dollar defense contracts nd several perks enjoyed by the very rich and very well lobbied will rarely be touched. And if none of those will be touched, I don’t see a moral argument for welfare for the poor being axed. And so more than likely, if all these obligations stay in place, U.S. debt will have to increase to astonishing levels in order to keep up. There’s always the chance that the econcomic growth of this plan will offset some of the lost revenue from the cut but anyone who tells you it will pay for itself completely is lying. It will not. Either spending will be cut (something Democrats will not allow) or debt will climb (something both Democrats and Republicans are loathe to see happen).
So while I am glad to see Trump’s tax policy come into effect, and while I appreciate his boldness in proposing a plan as drastic as this, it remains to be seen what the actual proposal will look like and how it will be implemented when it eventually passes.
It might either go through more or less as Trump intends, which would cement him as a bonafide winner, or it will be changed beyond recognition and pass as a shadow of what was proposed which would cement Trump as an empty showman.
Let us watch and see.
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