US President Donald Trump last night revealed a much-hyped tax reform plan that would slash corporation tax and do away with tax on foreign-earned profits returned to the country.
Trump’s reforms would cut the income tax rate paid by businesses to 15 per cent from 35 per cent.
The White House plan also calls for raising standard deductions for individuals, repealing inheritance taxes on estates and simplifying tax returns.
Trump campaigned on drastic tax reform to stimulate business activity and create jobs, but – even with Republican majorities in both houses of Congress – may face political headwinds due to the likelihood of it adding many billions to the country’s deficit.
The plan was unveiled at the White House by treasury secretary Steve Mnuchin and Trump economic adviser Gary Cohn.
Mnuchin called the proposals “core principles” that would be worked on with Congress to produce a bill that can be passed.
Facing questions on the fiscal holes that could be exposed from such drastic cuts, Mnuchin said the plan would pay for itself through economic growth, and by reducing tax deductions and closing loopholes.
After Trump’s healthcare policy setback, investors were generally cautious on the tax plan. “The key question really is what is doable from a budgetary and political perspective in Congress and this is going to be a bit of an uphill fight,” said David Lefkowitz of UBS Wealth Management.
Republican politicians, such as House speaker Paul Ryan had earlier put forward a plan which would make up for the fall in revenue by levying a so-called border adjustments tax on imports.
The border adjustment would effectively penalise importers and give a big boost to American exporters. However, despite Trump’s “America First” policy platform, Ryan’s border tax on imports was not mentioned in the President’s plans last night.
As well as rushing to present a tax plan, the President is also involved in negotiations over passing a budget for the federal government to avoid it shutting down on Saturday, his 100th day.