Contributed by Joe Montero
According to the US Treasury secretary, Donald Trump is about to announce his new tax cuts and has billed it the “largest tax reform” in US history.
“This is going to be the biggest tax cut and the largest tax reform in the history of our country,” he told a news forum in Washington.
This is about tax cuts for the rich. Trump will himself be a beneficiary of his generosity, at a time when he refuses to release details of his own taxes, amid accusations of tax dodging.
Those at the top personal tax scale are currently paying 39.6 percent of their income. This is to be reduced to 35 percent. The big one is company tax. It is going to be cut from 35 percent, to 15 percent, under the Trump plan. A draft plan has already been unveiled.
Note that according to the US Treasury’s own figures, 43 percent of company tax is paid by only the biggest 1 percent of companies, meaning that it will be mainly those at the top who will benefit. The rest is spread over a much larger number of businesses.
The Alternative Minimum Tax (AMT), which exists in addition income tax for certain individuals, corporations, estates, and trusts that meet conditions to pay less income tax, is going to be abolished.
Together, these tax cuts are going to cost at least $2.4 trillion in tax revenues, according to Americans for Tax Fairness. The Committee for a Responsible Federal Budget (CRFB) has put it as high as somewhere between $3 and $7 trillion. Whichever amount proves right, it will mean a major reduction in government spending.
Deductions allowed for State and local taxes will also be abolished, which will result in a significant tax rise for residents in states such as California and New York.
Trump came in asserting himself as champion of the working man and woman and a warrior against the Wall Street élite. Since then he has surrounded himself with major representatives of this élite and proved to be exactly the opposite.
Notably, he has not made good of his election promise to impose a tax on imports that competed with American jobs.
But the scale of the tax cut is causing some dismay, even within conservative circles. Without massive cuts to government spending, the effect on the government debt may be such that it could be put in an unworkable position. Cut too much on the provision of government services, the political backlash will be serious. It will also reduce the capacity of Americans to buy and this will have serious economic repercussions. Go the other way and increase the government debt. This will also have serious economic repercussions.
The Trump camp insists that the tax cuts will cause business to grow and this will take care of all problems. The assertion is being widely criticized, including by the conservative Tax Foundation.
The Committee for a Responsible Federal Budget (CRFB) has analysed that the debt will rise to “… 111 percent of Gross Domestic Product (compared to 89 percent of GDP in CBO’s baseline) by 2027…,” which will be the highest in US history.
There is a third way and that is to use monetary policy and export the debt to the global economy as a global debt. This means other countries will take on the burden. Australia will be in line, given our integration into the American financial system that will be affected through capital flows, the interest rate and trading relationships.