President Trump Explains Why We Need Tax Reform—and Why His Plan Will Work
In an op-ed this week President Trump wrote about his plan to reform America’s complex, and onerous tax code, which the President says is hampering America’s economic growth.
He also explains why his tax reform plan can fix it, claiming that he will make it “morning in America” again—an homage to Ronald Reagan’s famous turn of phrase.
The President is certainly correct in his diagnosis: in terms of corporate tax, America is one of the most heavily taxed jurisdictions in the developed world:
This is why so many American firms move their head offices out of America and into lower-tax nations like Canada or Ireland. This process is known as corporate inversion, and it’s a massive problem that has cost America (quite literally) trillions in lost tax revenue.
And sure, due to the multitude of deductions, many companies pay significantly less than the statutory rate, but this inherently benefits big multinational companies who can afford to hire armies of lawyers to avoid paying the statutory rate—many local businesses are therefore crushed by America’s high statutory rates (and of course the problem of offshoring).
And taxes aren’t just a problem for corporations: individuals pay a hefty price to live in America as well. In fact, taxes cost Americans more out-of-pocket earnings than do shelter, clothing, and food combined, according to the US Tax Foundation (a nonprofit):
Part of this is because the tax rate it high, but a major issue is with the tax code’s complexity. Most people, whether democrats or republicans, acknowledge this as a problem—fully 90 percent of Americans think the tax code is too difficult for ordinary people to understand.
This complexity costs us money: American people and businesses end up spending big bucks hiring accountants and lawyers to simply comply with the tax code. In fact, last year Americas spend an absurd $409 billion on tax compliance—a record high, which will only continue to grow unless meaningful tax reform is enacted.
And just so we’re clear: the people aren’t wrong. The US tax code has nearly tripled in length from Reagan’s substantive reforms in 1986 (which themselves were inadequate). The US tax code is 2,650 pages long, and in addition to that, there is a further 70,000 pages of tax forms, instructions, and common law court decisions that must be complied with.
If we’re being honest: there is likely no single American alive today who has read every piece of relevant tax law—and this includes the best New York tax attorneys too. And even if someone has, the likelihood that they remember how everything works together is next to nil. The code is just too long and too complex.
And of course, this does not even include other pseudo-taxes like Obamacare, where the average family health insurance plan costs employers some $17,000 per year—this is a tax by any other name. The above image shows just how many Obamacare regulations there were (over 10,000 pages when printed out).
Add to this minimum wage laws, government regulation fees (things like business licenses or certifications) and it truly is a wonder that anyone can afford to set up shop in America to begin with.
Again, it’s rather clear that America needs legislative tax reform—desperately.
Trump Talks Taxes: What Has He Done So Far, How Will His Tax Plan Work?
From here on out, we will let the President speak for himself.
President Trump begins his article explaining what his administration has done thus far:
In the nine months since I took office as president, we have removed intrusive, job-killing regulations at a record pace. We are leaving lopsided international deals that hurt America like the Trans-Pacific Partnership and Paris Climate Accord. We have unleashed American energy by ending the war on coal and approving major projects like the Keystone XL and Dakota Access Pipelines. And earlier this month, I signed an executive order to take important steps to free our people from the grip of Obamacare.
Our plan will transform the tax code so that it is once again simple, fair and easy to understand. We want you to spend your valuable time pursuing your dreams, not trapped in a tax compliance nightmare.
We will cut taxes for hardworking, middle-class families.
We will double the standard deduction, which means the first $24,000 of a family’s income will be tax-free. We will also expand the child tax credit. And we will lower rates so that families will keep more of their hard-earned money.
We will also restore our competitive edge so we can create better jobs and higher wages for American workers.
Our plan will provide tax relief to businesses of all sizes, and deliver our small and medium-sized businesses the lowest top rate in more than 80 years.
Finally, we will bring back trillions of dollars in American wealth currently parked overseas.
Today’s tax system foolishly penalizes companies that bring foreign profits back to the United States. Our plan encourages companies to bring this money home, where it can be invested in American companies, American jobs and American workers.
If Congress comes together to enact this commonsense plan, the Council of Economic Advisers estimates that it will raise the annual income of a typical, hardworking American household by an average of around $4,000.
Just imagine the possibilities.
There’s no doubt that tax reform is needed, but whether or not the President has the political capital to push his agenda through (a relatively hostile) Congress remains to be seen. It is also unclear whether or not the reforms will do enough to simplify the tax code (they likely won’t, although the burden is so high on this front just about anything he does will be an improvement).
Furthermore, conspicuously absent from his tax plan are the protective tariffs he promised for American industries—a tariff is a must. They are justified not just on economic grounds, but on historical and political (national security) grounds as well.
I’ll leave you with President Trump’s speech in Harrisburg, where he outlines his reforms in detail. It’s long, but worth a watch if you have the time.