The US tax system is to be overhauled. US Tax cuts have been proposed as President Donald Trump is seeking cuts to corporate tax and income tax for higher earners. Although Trump has stated that this would aid competition, others believe it to be a gift to the wealthy.
Republicans are calling for the corporate tax cut from the current 35% down to 20%. Donald Trump’s administration had earlier pledged to reform the US tax system by the end of this month. However, although they appeared united at Wednesdays’ meeting, not everybody in the administration agrees on the detail.
One of the issues is how to pay for these deep cuts. Cutting corporate tax from 35% to 20% involves a great deal of lost revenue for the US government. The Republicans have given no indication of how this tax cut is to be funded. Presumably, it will come from some form of tax benefit reduction, but which?
It’s not only corporate tax that forms the proposal. Business taxes on overseas profits are also to be reduced. There will also be a cut in the rate for limited liability companies and other ‘pass through entities’. Families will also benefit from the Republican tax changes.
Tax credit for children will be increased, a tax on inheritance will be abolished and deductible for individuals and families is to be doubled to $12,000 and $24,000. Not only that, but it is proposed to reduce the tax brackets to just the three: 12%, 25%, and 35%. This compares to the current lower rate of 10% and highest of 40%. So some will lose and the richest will gain most.
While Donald Trump insists that this structure will benefit the middle classes, the Democrats disagree. They believe that the middle class and lower-income single parents will be the main losers with this tax structure.
A leading Democrat, New York’s Chuck Schumer, is reported as stating that these tax cuts would result in a higher deficit, and expose Medicare, Social Security and similar programs to unnecessary risks.
Donald Trump insists that lower business taxes would promote a level of growth that would help meet the cost of the reforms. Others disagree, and economists believe that the US debt will increase above its current level, which is already standing at over $20 trillion.
The Republicans are keen on changing the US tax system before the end of the year, at a time when they have control of both the White House and Congress. It seems that there is still a lot of talking to be done before these proposed tax cuts can be implemented. What seems sure is that the US deficit is too high to be able to fund the proposed cuts.
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