We told you yesterday about the Trump plan to reduce the corporate tax rate from 35 percent to 15 percent, and to make a similar move on the repatriated profits tax. Later in the day, more detailed emerged about Trump's larger tax proposal. Via CNBC, here are the high points:
Trump's plan will cut the number of income tax brackets from seven to three, with a top rate of 35 percent and lower rates of 25 percent and 10 percent. It is not clear what income ranges will fall under those brackets. It would also double the standard deduction.
The proposal will chop the corporate tax rate to 15 percent from 35 percent.
It would eliminate tax deductions with only a few exceptions, including the mortgage interest and charitable contribution deductions.
The White House said there will be a "one-time tax" on the trillions of dollars held by corporations overseas. However, Mnuchin said the rate for that tax has yet to be determined. Mnuchin said the White House is "working with the House and Senate" on a repatriation rate, saying it would be "very competitive."
The plan would get rid of the estate tax, otherwise known as the "death tax." Cohn said that the move will help privately-held businesses and American farmers. Analysis of the estate tax reveals that it affects only a very small portion of Americans.
Mnuchin also said the U.S. would go to a "territorial" tax system. Though further details were not forthcoming, such systems typically exclude most or all of the income that businesses earn overseas.
Trump's plan would also repeal the alternative minimum tax and 3.8 percent Obamacare taxes.
Still to be addressed:
What are the income levels that will correspond to the three brackets?
What other deductions will be spared apart from mortgage interest and charitable contributions? (In my view these should go too but they're too politically popular to touch, I guess. And yes, I thought the same thing when I owned a house.)
By a "one-time tax," does that mean corporations will get one opportunity to repatriate their profits at a super-low rate, and after that the tax will go back up to the existing 35 percent rate? Or does it mean the super-low rate will be replaced after a period with another rate that's still much lower than the 35 percent that's got corporations keeping their capital overseas? I assume this is designed to encourage a rush of capital coming back, and it will probably work, but remember it will work only one time. After that, corporations may be less stingy about bringing their profits home if the new rate is still significantly lower than the status quo. Otherwise this has the feel of a stimulus gimmick.
What exactly do they mean by a "territorial tax system"? Is that the same as not taxing repatriated profits? If so, how does that jibe with the "one-time" nature of the idea described above?
Most of the Beltway is obsessed with whether the plan would be "revenue-neutral," and will insist on viewing that question in a static manner that refuses to account for new activity as a result of the tax changes. But it's the wrong question anyway. What really matters is whether the changes spur economic growth, which averaged less than 2.0 annually under Obama.
We need to quickly get to 3.0 percent annual growth and then move aggressively toward 4.0 percent or even 5.0 percent. I'd prefer a flat tax, even lower rates than these and pretty much no deductions at all. But Trump's proposal is much, much better than the status quo.
