Economy

American tax reform has broad political will behind it

The US has promised radical tax change before – but this time they might mean it

A Donald Trump supporter. Photograph: Jim Young/File Photo/Reuters

Sat Sep 30 2017 - 05:25

Donald Trump's announcement this week of a new tax "framework" to reform the US tax system marks the latest attempt by the US president to advance the America First policy that helped to propel him to the White House.

Coming just hours after the Commerce Department slapped a 220 per cent levy on Bombardier jets – another example of the protectionist impulse of the US administration – the new proposals mark the latest attempt by the administration to prioritise American jobs and push back against globalisation.

Mr Trump didn't name names when he unveiled the plan, including a proposed cut in the corporate tax rate to 20 per cent, in Indiana. But his message was clear: many countries who "say they're friends" have in fact "adopted our playbook and ran it even better than we did," he said to cheers, adding: "when our companies move to other countries, it's our loyal American workers who get hurt".

Tax experts here were quick to point out that the US has promised radical tax change before, only for that aspiration to be scaled back significantly when it faced the reality of Congress. That is true. But in this case, the Republican Party controls both Houses of Congress, and the White House and Republicans are desperate for a legislative victory following the collapse of their much-feted healthcare proposal. Similarly there is broad bipartisan support for a reform of the US tax code, with many Democrats also keen to tackle the issue of US companies harbouring trillions of dollars offshore.

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While the changes in corporate tax and the proposed tax amnesty for offshore profits will be up for negotiation in the relevant committees at Congress, the main subject of disagreement is likely to be on the personal income tax side, which directly affects all Americans. Already the proposal to repeal the current system of deduction for local and state taxes has received pushback from some Republicans, for example. So far, the usual deficit hawks on the Republican side seem to have gone unusually quiet about the impact of the sweeping tax cuts on the deficit, now that their party is controlling all the levers of power in Washington.

Yes, a reform of the corporate tax system still has many obstacles to face. But politically, there is broad political will in Washington to reform a system that many believe is ill-suited to the era of globalisation.

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