The Donald Trump administration is pushing for the biggest American tax reform in decades. Currently, America’s top corporate tax rate weighs in at a whopping 35%, but if President Trump gets his way, the rate will be cut to only 15%. This is considerably lower than the United Kingdom’s 19% corporate tax rate, which in turn is one of the lowest tax rates in Europe.
Of course, talking about tax reform and actually implementing it are two separate things. So far, the Trump administration has struggled to push through major reforms. America’s government is divided through a checks and balances system, with Congress, the Supreme Court, and the Executive Branch all having different powers. This division of power makes it difficult for Presidents to push through reform.
Congress is responsible for passing laws and Presidents can only issue executive orders, which have less actual impact. Tax reform will have to actually be written by Congress. Problem is, Trump doesn’t appear to hold too much sway over Congress. The President’s efforts to overturn and replace “Obamacare” failed. Not only did Democrats refuse to support his health care reform efforts, but so too did Republicans. Could Trump face similar challenges while trying to push through tax reform?
Right now, it looks like the Trump administration is setting itself up for another divisive push. While many Republicans want to lower taxes, they also want to ensure that the cuts are paid for. For example, House Speaker Paul Ryan, who is the most powerful Republican in Congress, wants to implement a border tax. Without this border tax in his plan, Trump may not even have support from Congress.
Ryan’s border tax would work basically by eliminating deductions for companies who purchase materials from abroad. This would make it much more expensive for companies to purchase foreign made goods. It would also make domestic consumption look much more attractive. The measure would also help pay for the proposed tax reforms.
However, this measure is itself very divisive. Many Republicans do not support it as it appears to be anti-trade. At the same time, it could also raise the costs of doing business. Republicans in the Senate, which is separate from the House, have been vocal in shooting down the border tax measure. Many Republicans want tax reform, but they don’t want to create a border tax that will make it more expensive for American companies to do business.
Companies and big businesses in the United States spend millions of dollars lobbying Congress. They also contribute heavily to campaign funds. This means companies have a lot of sway over Congress. Some companies would pay heavily for border taxes. As such, they are pushing back against this particular tax reform, and the Congress persons they support are likely to push back as well.
Tax reform may be on the way in the United States, but it’s far from certain. Meanwhile, France, Italy, and other countries are also contemplating tax reform. All in all, these efforts will make the international business environment more complicated, for a bit, as people and companies adjust. For businesses and wealthy individuals, however, tax reform could be a big boon.