Here’s What Trump’s Tax Reforms Could Mean For The Economy, Markets

From Mike Burnick: Tax reform is back in focus as the Trump presidency closes in on the 100-day mark and the administration searches for legislative accomplishments.

But clarity on a tax-reform plan seems fleeting. And I don’t have to tell you that actual implementation is a challenge in the face of growing partisanship.

A good place to start the conversation is with a list of tax-reform proposals that have been batted around. They come from a combination of recent statements, tweets and last year’s Republican blueprint on tax reform.

Trump tax-reform proposals include …

  • Significantly cutting individual rates.
  • Consolidating income-tax brackets from seven to three.
  • Doubling the personal exemption for most taxpayers.
  • Reducing corporate income taxes from 35% to the 15%-to-20% range.
  • Immediate “full expensing” of business investments.
  • Reducing taxes on capital gains.
  • Reducing rates on income from pass-through businesses.
  • Some form of border-adjustment tax.

If enacted, these initiatives could drive GDP growth from 1.6 percent in 2016 toward the postwar average of 3% to 4%.

Front and center, cutting corporate tax rates from 35% to 15%. However, such a goal comes at a cost that’s sure to lift budget deficits.

In fact, the Congressional Joint Committee on Taxation estimates that each percentage-point cut in the tax rate lowers federal revenue by $100 billion in the coming 10 years. In other words, the proposed reduction to 15 percent would cost roughly $2 trillion.

That’s a heck of a lot of cash.

Perhaps that’s why Treasury Secretary Steven Mnuchin and Budget Director Mick Mulvaney are quick to point out that the administration’s tax-reform plan will pay for itself through faster economic growth.

That view is supported by the Tax Foundation’s analysis. The think tank estimates that cutting the corporate tax rate would boost long-term GDP by 2% and that the “full expensing” of corporate investments would contribute another 5%.

And that’s the kind of “go big or go home” reform the Trump administration is selling.

But it’s a tough sell because it’s sure to ruffle feathers among conservative lawmakers who want revenue-neutral reform that doesn’t raise budget deficits.

In comments just last week, President Trump promised massive tax cuts for the middle class and businesses, which he viewed as more important than lost government revenues.

While that’s all fine and dandy, the fact is that deficit-financed tax cuts are going to need Democratic votes. Plus, more-liberal factions are sure to oppose large tax cuts for corporations as well as proposed spending cuts in housing, arts and the environment.

But we need to see some details before the partisan antics heat up on Capitol Hill: The Trump administration is expected to release detailed tax-reform proposals this week and they’re sure to trigger more questions.

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This article is brought to you courtesy of The Edelson Institute.

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