Trump tax reform: reduce tax burden; simplify tax filing procedures; attract US companies to return profits and prevent double taxation;
The reasons for the continued entanglement of tax reform: the fear of a large-scale deficit in the tax reform bill; the debate over whether the tax reform bill will ultimately benefit the rich or the poor; the housing mortgage deduction policy has led to opposition from relevant interest groups; will it affect 401 ( k) Savings plan.
In a simple comparison, in addition to the "Obama era", the tax reform will indeed play a significant boost to the economy, corresponding to a significant decline in the fiscal surplus, but as the "Laffer curve" said, as time goes on, the fiscal The surplus will pick up again.
On the afternoon of December 2, Beijing time, the Trump tax reform was passed in the Senate, taking a historic step and gradually approaching the formation of the final bill.
What exactly does the Trump tax reform need to "change"? Why should I change? It is too late to land, where is the difference? What have you changed "before"? We analyze them one by one:
What kind of purpose does the tax change to achieve?
The Trump Tax Reform Program is the first major reform of the tax system in the United States in 30 years and is Trump's most important commitment in the 2016 general election. Trump began to emphasize when he campaigned for the US president. The main proposition is:
(1) The minimum tax for enterprises will be reduced to 15%
(2) SME tax will also be reduced to 15%
(3) 100% deduction of the company's optional fee
(4) The overseas income of the enterprise will be 15%.
(5) A one-time tax of 10% on the return of the company's overseas retained earnings to the domestic market.
The intention of the above policy is to:
Purpose 1: Reduce burden
Burden for the middle class:
The current standard deduction for personal income tax is $6,350 for individuals and $12,700 for families. The tax reform plan for April 27, the tax reform framework for September 27, and the current Republican tax reform proposal show that the standard deduction for personal income tax has doubled to the current level (approximation). In addition, the thresholds for various tax rates have also expanded to varying degrees. This will benefit more low-income people and increase the tax deductible for higher-income people.
Trump's claim that the biggest winner of the tax reform will be the middle class. After the announcement of the Republican tax reform plan on November 2, the Republican House of Representatives Speaker Ryan of the US House of Representatives stated that a typical family of four (income of $59,000) would reduce the tax by $1,182.
Reduce the burden for the company:
Under the current tax system, US companies adopt a progressive tax rate of eight, while the highest tax rate for small and medium-sized enterprises in the form of owners has reached 39.6%.
According to OECD statistics, the average US federal, state, and local corporate tax rates for 2016 and 2017 are both 38.9%, the highest among the 35 countries. In the world, the US corporate income tax rate of 38.9% is only lower than that of the United Arab Emirates and Puerto Rico, ranking third.
Goal 2: Attract US companies to return overseas profits, invest in China to stimulate the economy
The root cause lies in the double tax system
At present, US companies need to pay taxes at a rate of 35% in returning overseas profits. In addition, they may have already paid a tax in the country where the profits are located. This has led to a double taxation system for US companies' overseas profits.
And the tax rate that American companies need to pay back to profits themselves is as high as 35%, which leads to US companies often leaving overseas profits overseas.
Goal 3: Clear complex tax system & simplify tax filing procedures
Under the current tax system, the US personal income tax rate has 7 files (including 39.6% for the affluent class), in addition to various individual and family deductible items; the US corporate income tax uses a progressive tax rate of eight.
In addition, there is an alternative minimum tax (AMT) system for US taxation, which means that an alternative tax amount needs to be calculated. When paying taxes, you need to choose the lower one of the two. This requires two different calculations and declarations of the tax amount, and the tax filing process becomes extremely complicated.
At present, according to the tax reform proposal of the House of Representatives, the AMT system will be abolished, personal income tax will be reduced to 3 files (+39.6% for the rich), and corporate income tax will be reduced to 20% by the progressive tax rate of 8 (+ for SMEs) 25%), this series of measures will eliminate the complex tax system in the United States and greatly simplify the tax filing process.
How is the tax reform advanced?
1. How is the tax reform advanced?
The process of tax reform has been twisted and twisted, and there are two proposals for the House of Representatives and the Senate:
2. What changes have been made to the program in the process?
After the subsequent Senate passed its own version, the two houses of Congress said that they would reconcile the two "laws", so it is necessary to compare the differences between the two bills:
3. What is the difference between the “Participation” and “Public” bills?
It is obvious that the Senate's bill is obviously weaker than the House of Representatives, and it is a tax reform bill that is more "discounted".
The tax reform of "going forward": Where is the difference?
The obstacles and difficulties faced by the tax reform include not only the struggle between the Republican Party and the Democratic Party, but also the internal consensus of the Republican Party. In addition, the external resistance is also great.
Controversy 1: Tax cuts can lead to large-scale deficits?
The tax reduction plan will definitely lead to an increase in the US government's debt. As early as the April 27, 2017 Trump tax reform plan, the budgetary problem of the tax reform plan has become the key to the final implementation of the tax reform. problem. On May 23, US Treasury Secretary Mnuchin said: "I will not recommend a $4 trillion or $5 trillion tax plan in the future."
Since the tax cut will result in a debt ceiling, the passage of the 2018 Budget is critical to tax reform:
Therefore, an important part of the game is the voting in the 2018 fiscal year budget: On October 20, 2017, the US Senate passed the 2018 fiscal year budget with 51 votes to 49 votes, which cleared the major obstacles for the Republican tax reform. This version of the resolution allows the tax reform to add a $1.5 trillion deficit in the next 10 years, and only a simple majority (ie 51 votes) will be passed. On October 26th, the US House of Representatives approved a budget solution for tax reform, paving the way for Trump tax reform.
So far, according to the Republican’s November 2 tax reform proposal, the tax reform plan will lead to a deficit of 1.51 trillion US dollars in the next 10 years. However, there are still many opinions that this tax reform bill will result in a deficit of more than 1.51 trillion US dollars in the next 10 years. For example, the US Congressional Budget Office (CBO): The House Republican tax reform bill will cause the federal budget deficit to increase by $1.7 trillion over the next 10 years.
Controversy 2: Is the tax reform “helping the poor” or “getting rich”?
The tax reform plan has eliminated the 39.6% tax rate for the rich, and the attitude of the tax reform framework for the retention of the 39.6% tax rate has not yet been decided. Based on the principle that the tax of the rich cannot be reduced, the Republican Party’s tax reform proposal on November 2nd retained the 39.6% tax rate for the rich.
Trump claims that the biggest winner of the tax reform will be the middle class. House Republican Speaker Ryan said: A typical family of four (income of $59,000) will reduce the tax by $1,182 (from $1,582 to $400). ).
However, according to TPC's calculations, the most profitable tax reform is the income group with income ranking at TOP1%. In addition, the bill also expanded the exemption from the property tax on property tax doubling, and plans to abolish the property estate tax after six years. According to the Fed's report, the top 1% of households in 2016 accounted for 39% of the total income, which is higher than the historical 30% in 1989. At present, the gap between the rich and the poor in the United States has reached the highest point in history, and currently according to the TPC. It is estimated that the tax reform seems to further increase the gap between the rich and the poor.
Controversy 3: The mortgage loan deduction policy has led to opposition from relevant interest groups
The tax reform bill (revised edition) on November 6th shows that the tax reform plan maintains the current mortgage for housing under $500,000.interest rateDeduction policy remains unchanged, while current mortgageinterest rateThe deduction policy is that the deduction of interest expenses can reach 1 million.
This policy change will have a big impact on the real estate industry, Moody's chief economist Mark Zandi said that in the high-price housing areas of the United States, the tax reform will initially reduce house prices by 10%, down 3%-5% in the United States. On the day of the announcement, the share price of home builders fell the most in a year.
In fact, on October 29th, the National Association of Home Builders (NAHB) vowed to defeat the proposal because of dissatisfaction with its terms of adjusting the mortgage for home mortgages, while the National Association of Realtors opposed the tax reform from the beginning. motion.
Controversy 4: 401(k) Savings Plan
After the April 27 tax reform plan was announced, Trump said that the tax reform plan will not affect the 401K savings plan. After the tax reform plan was announced on September 27, Trump once again stated that "the tax reform plan will not adjust the upper limit of the 401K deposit tax credit. This is a good tax cut method widely used by the middle class."
However, on October 26, in contradiction with Trump, Congress said it is still possible to adjust the retirement savings plan 401(k) in the tax reform. Earlier, the media reported that Republicans considered reducing the annual payment limit of 401(k) from $18,000 to a minimum of $2,400. In the process, Republican leaders have been trying to ease their opposition to possible adjustments to individual retirement savings and state and local tax payment terms.
Note: A special retirement savings plan in the United States is popular because of the tax benefits.
Compared with historical tax reform
Before the Trump tax reform, the main focus of the "tax reduction" was "Reagan tax reform" and "Little Bush tax reform";
In addition to the tax cuts in the “Obama tax reform” in 2010-2014, there are also “increasing taxes” measures for the rich, which are the product of the dual purpose of stimulating the economy and saving the biggest “financial deficit” in history.
By simple comparison, in addition to the "Obama era", the tax reform will indeed play a significant boost to the economy, corresponding to a significant decline in fiscal surplus, but indeed, as the "Laffer curve" said, as time goes by, The fiscal surplus will pick up again.
The results of the two houses of the Senate were reconciled.