For individuals, the plan reduces the seven tax brackets for individuals down to three tax brackets: 10%, 25%, and 35%. It would double the standard deduction, but would also eliminate many specific deductions including the AMT, the Death Tax, and other targeted tax breaks. The administration is selling the idea that many individuals may be able to file their taxes on a postcard, with a much simpler process.
Sean Spicer laid out the purpose of the proposal clearly, stating that the goal was to “provide tax relief to our corporations that will help grow jobs and to middle Americans.”
And rate reduction is not just political lip service. The United States has just about the highest corporate tax rate in the world. An August 2016 report from Tax Foundation found that the United State has the third highest corporate income tax rate, exceeded only by the United Arab Emirates and Puerto Rico. Europe and other industrialized nations tend to have a much lower rate.
However, one major aspect of the House Republican Proposal is not currently included. The Border Adjustment, which would tax imports but provide tax relief for exports is not part of the White House’s stated agenda. Though this is a one page proposal, and it is highly likely the plan will go through major revisions if it is passed.
There are some real challenges that must be overcome. The law, when introduced, would need to be passed by reconciliation, which was unsuccessful earlier this year with the AHCA.
With the Border Adjustment currently out, the clash of the retailers versus the manufacturer exporters becomes less problematic. But deficit hawks may the most influential caucus in DC right now. With a federal government budget battle looming, the timing is not ideal.
However, we need to grow our economy, and it’s time to address the tax code. I’m just about the same age as the last major reform effort, and the world has changed significantly. We cannot compete in a global economy with Chad or Equatorial Guinea’s tax code based on economies from thirty years ago.
Tax Foundation concluded during the campaign that candidate Trump’s plan would increase the economy from 6.9% to 8.2%. Couldn’t we use some of that growth here in Illinois?