Now we’re getting somewhere — maybe!
Republican presidential candidate Donald Trump delivered an economic speech in Detroit, where he discussed his tax reform plan. There wasn’t a lot of detail, mind you — that would have been out of character. But I like what I see, even if I can’t see much. Here’s why he gets three cheers.
First cheer: lower income tax rates. Trump proposes to reform the income tax by reducing the seven current rates — ranging from 10 percent to a high of 39.5 percent — to just three: 12, 25, and 33 percent.
Trump didn’t reveal what the income thresholds would be for those three brackets, or where he might set a standard deduction — two critical factors in determining how families would be affected.
The media immediately pounced, claiming Trump’s reform would help higher-income workers more. But most of those pundits also had to concede that’s because lower-income workers pay little to no income tax.
Trump also says he would “dramatically streamline the process,” but how?
What that phrase means in conservative circles — and presumably what Trump plans to do — is reduce the number of tax breaks that make the tax code so complicated. But that effort would face huge obstacles, since those with a vested interest in the current breaks would fight hard to keep them.
Second cheer: lower corporate tax rates. Trump proposes lowering the corporate income tax rate from 35 percent — the highest in the developed world — to 15 percent, which would be nearly the lowest. Two big thumbs up!
Many economists argue that the appropriate business tax rate should be zero, because corporations don’t actually pay taxes. Taxes are business costs that are passed on to consumers in the form of higher prices.
But we don’t live in a world that cares much about economics. A large part of the public believes that high corporate tax rates “stick it to da man” — just ask Bernie Sanders.
Trump’s 15 percent corporate income tax rate would jumpstart the most sluggish economic recovery since the Great Depression. Business investments and expansions that didn’t make economic sense at a 35 percent rate could make a lot of sense at 15 percent.
In addition, Trump says that his “business tax will also end job-killing corporate inversions,” where U.S. companies merge with overseas companies to fall under the foreign country’s lower tax rates.
The fact is that companies merge for lots of reasons, not just for tax avoidance, but Trump’s plan would lead to fewer inversions and encourage more foreign companies to merge with American companies under American tax law.
Third cheer: bringing the money home. An estimated $2.1 trillion of U.S. corporate cash is sitting in offshore banks, precisely because of those high tax rates, plus our global tax system.
Most countries rely on a territorial tax system, where a company with offshore operations pays the foreign country’s corporate tax, and brings what’s left home with no additional taxes. By contrast, American companies with overseas operations must pay the taxes of those countries, and if they repatriate the remaining funds, they pay the U.S. government the difference between those foreign taxes paid and the U.S. tax.
Trump proposes a 10 percent flat tax on money currently located offshore, and many companies would jump at that offer. More importantly, Trump’s lower corporate tax rate would largely eliminate the problem going forward.
Trump mentioned a few other provisions, including eliminating the death (estate) tax — again.
The death tax passed away temporarily in 2010, but Democrats want to revive it, not because it brings in much money, but because it has been a leftist cause since Karl Marx included it in the Communist Manifesto. Conservatives do not believe that death should be a taxable event.
One estimate of the “cost” in federal revenue of Trump’s earlier tax reform plan was about $10 trillion over 10 years. Changes to this version should lower that estimate. And if Trump were to dramatically slash federal spending, those cuts could offset much of the lost revenue.
The biggest problem with Trump’s tax reform is that it’s only an outline, albeit a good one, with less than 100 days until the election. Like so many of the things he says, it’s more of a platitude than a plan.