Donald Trump made a number of campaign promises during his electoral campaign. These include the changes his administration proposed to make on individual taxes. Some of the key issues listed included:
3.8 percent tax will be eliminated on net investment income on people who have a modified adjusted gross income of over $200,000 for single filers and $250,000 for joint filing by a married couple.
Repeal of the estate tax and the alternative minimum tax.
Trump’s tax reform plan, a one-page list tagged “The Biggest Individual and Business Tax Cut in American History” which was released on 26th April 2017 didn’t disclose many details -typically characteristic of Trump. However, the major issue was slashing the corporate tax from 35 percent (one of the highest in the world) to around 15 percent.
At the moment, corporate income tax taxes companies at an elevated statutory rate, unlike what is obtainable in other advanced countries. However, less money is acquired as a percentage of the total economy when linked to other advanced nations. The entire tax scheme is complex; it gives companies incentives to borrow excess money and shift their operation to other countries with lower tax rates.
It is actually possible for Trump to try and fix all the tax flaws since the House and Senate are dominated by Republicans who have agreed that tax is a priority. It is safe to think of the tax reforms as a rework of how businesses are taxed. This will be a major upheaval, since the introduction of the corporate income tax over a century ago. If these tax reforms come into law, they will not only affect major corporation tax, but also the global financial markets.
At the moment, the tax levied on a business is dependent on the income they generate in the United States. Corporate accountants tend to be smart and have dreamt up countless tricks to lower their companies’ income tax as well as their overall tax burden -tricks that distort the economy.
Like we mentioned earlier, one of the tricks used by corporate accountants to beat the tax system is to transfer intellectual property to an overseas holding company. The second way is to move the company’s legal headquarters to a country with lower taxes. The current system allows tax-deductibles on interest payments on a debt. This makes it appealing to take as much debt as permitted, even though this can increase the risk of bankruptcy.
The tax scheme the Republicans are proposing is one that will go after the domestic cash flow of a firm rather than wasting time on its corporate income, which is easy to manipulate. Domestic cash flow includes money accruing from sales within the United States, deducting the money that goes out to pay employees, buy supplies and so on. In this new tax scheme, overseas companies who want to exploit tax differences will still have to pay tax on goods they sell in the United States.
An economist at the University of California, Alan Auerbach who also faulted the previous tax scheme said it was difficult to measure income but with the new scheme, you just follow the money. Auer Bach argues that the new tax scheme could spur business investment and encourage companies to steer clear of debt.
If there is any reason why Americans should listen to Trump’s tax ideas and begin to dissociate his true personality from the image he projected during his electoral campaign, it is because he is an aggressive businessman. Like every successful businessman, he employed every legally permissible technique to reduce his tax obligations. Having felt the pain of cumbersome tax, it is Trump’s desire to lower the tax burden on corporations and the general public.