The information in this article is from Investor’s Business Daily and the Tax Foundation.
Investor’s Business Daily reports:
Among the most potent provisions in the GOP tax reform package unveiled Wednesday by President Trump are the big cuts in taxes on corporations and small businesses. Inevitably, they will be styled by foes as a sop to the rich and Wall Street. In fact, they’re one of the best middle-class tax cuts of all.
How we tax businesses is among the most distorted, costly and anti-competitive elements of our tax code. Today, U.S. corporations competing on the world stage face a top tax rate of 39%, compared to a 23% average for the rest of the world.
The proposed Republican tax reform would slash that to 20%, below the average. It would also shift the U.S. to a “territorial taxation” model, which keeps overseas profits from being taxed twice — once when the profit is earned overseas, and again when repatriated to the U.S. The U.S. is almost alone among nations in doing this.
Meanwhile, new rules would level the playing field between U.S.-headquartered companies and foreign-headquartered companies by keeping our rates low. This will keep companies from buying foreign companies and relocating their headquarters overseas to take advantage of lower rates.
Then there’s small businesses. Among other things, the plan cuts levies on so-called S corporations (small businesses and sole proprietorships, in which the profits go to the owner’s individual tax form) to 25%, thus giving many small business owners who now pay super-high individual tax rates of 30% or higher a big tax cut. It also lets businesses write off investments (except for structures) immediately. This would let companies recapture the value of their investments more quickly, lowering their tax bite now and boosting profits later on.
The article notes that the media generally portrays business and business owners in a negative light. They fail to realize that businesses pass the expense of taxes along to the consumers. We are the ones who pay the corporate taxes.
Investor’s Business Daily further states:
…A survey of tax-cut research by the Heritage Foundation finds 10 studies demonstrating that corporate tax cuts improve worker welfare by upgrading their skills, improving the equipment they work with, and boosting their pay.
Another recent study, this one published in August by economists Andrew Hanson of Marquette University and Ike Brannon of the Cato Institute, asserted that “recent tax reform discussions that propose a (corporate) rate reduction between 30% to 57% … would imply employment gains between 6% to 22% and wage increases between 15% to 28%.” That’s quite a gain, and a big reason why tax reform could put us back on the path to 3% average GDP growth.
Sadly, because of the relentless anti-business bias of the U.S. media, many Americans think corporations are “greedy,” and so they should be taxed to the gunwales.
The Tax Foundation reports:
- Mr. Trump’s tax plan would substantially lower individual income taxes and the corporate income tax and eliminate a number of complex features in the current tax code.
- Mr. Trump’s plan would cut taxes by $11.98 trillion over the next decade on a static basis. However, the plan would end up reducing tax revenues by $10.14 trillion over the next decade when accounting for economic growth from increases in the supply of labor and capital.
- The plan would also result in increased outlays due to higher interest on the debt, creating a ten-year deficit somewhat larger than the estimates above.
- According to the Tax Foundation’s Taxes and Growth Model, the plan would significantly reduce marginal tax rates and the cost of capital, which would lead to an 11 percent higher GDP over the long term provided that the tax cut could be appropriately financed.
- The plan would also lead to a 29 percent larger capital stock, 6.5 percent higher wages, and 5.3 million more full-time equivalent jobs.
- The plan would cut taxes and lead to higher after-tax incomes for taxpayers at all levels of income.
The Democrats will fight this plan tooth and nail. Why? Because under this plan states with reasonable tax burdens will no longer subsidize states with high tax burdens. New York, California, Connecticut, and Massachusetts (to name a few) all will have to re-examine their tax policies or they will see a taxpayers’ revolt.
I celebrate the end of the death tax. The purpose of the death tax is to redistribute wealth–that is not an American value. The money in an estate was taxed as it was earned. If land increased in value, so be it. A family should not have to sell the family farm to pay their taxes.
Democrats have never met a tax cut they liked. I expect this one will be no different. The other thing to keep in mind is that the worst nightmare for the Washington establishment is a successful Trump administration. These tax cuts would promote economic growth, which in turn would begin to lower the deficit. The Washington establishment cannot afford to have an outsider reach that level of success. Now if we could only cut the spending.
You can expect the Federal Reserve to begin to raise interest rates quickly in an attempt to slow economic growth. The Federal Reserve is also part of the Washington establishment that does not want an outsider to succeed.