Mr Trump’s tax reforms

Welcome to the new President. On his Inauguration day I want to send him best wishes for his period in office. I want to encourage him to concentrate on improving the economic lot of voters in the USA. Tax reductions and tax reform can be a crucial element in his programme.

Mr Trump himself campaigned to cut income tax for the many, to reduce the number of income tax bands from 7 to 3, and to take more people out of income tax altogether. He argued for a corporation tax rate of just 15%, and an incentive rate to get offshore profits of US corporations repatriated to mainland and Main Street America.

To get any of this through he needs the active engagement of Congress. Paul Ryan, the Speaker, is also a tax cutter and reformer by instinct. He has made more radical proposals than Mr Trump’s. The two of them need to get together and sort out their differences, so something can get done.

Speaker Ryan wants to change company profits tax to a cashflow tax, where the destination of the goods or services matters. He wants to tax imports and exempt exports. He believes his proposals would pass muster with the WTO, though others disagree. Mr Trump is not persuaded by this element of the Ryan plan, maybe because he does worry about the international repercussions of such a direct intervention in favour of domestic as opposed to traded activity.

Some Republicans worry that Mr Trump’s reforms would lose the US too much revenue at a time of large deficits already. Others reckon the positive effects on growth and the onshoring of profits would mean the tax cuts were affordable. There is no doubt that a sensible tax package for companies can assist the President’s aim of making more in the USA. Cutting taxes on individual earnings can boost incomes, increase consumption, and start to deal with the feeling of many that they have been left behind in recent years.