On July 27th 2017 House Speaker Paul Ryan’s office published a statement saying “… for the first time in many years, the American people have elected a President and Congress that are fully committed to ensuring that ordinary Americans keep more of their hard-earned money and that our tax policies encourage employers to invest, hire, and grow”. It concludes by stating “… the time has arrived for the two tax-writing committees to develop and draft legislation that will result in the first comprehensive tax reform in a generation” and that “American families are counting on us to deliver historic tax reform. And we will.”
Such optimistic words – which have now made their way into the speeches of many American leaders – don’t come as a surprise. Tax reform has been a major policy agenda item in the US for a long time and with the policy agenda on healthcare having effectively imploded, legislative success is desperately needed in the Republican party who control both the White House and Congress. So … is tax reform the next big thing?
There is reason to believe that tax reform could work. First, politicians on both sides of the aisle agree that tax reform is a much needed and necessary step for development. The last comprehensive reform was enacted by Ronald Raegan in 1986. The current system is considered by many to be complicated, unfair and discouraging to business – both domestic and international. Second, the outline of proposed tax reform is currently on the table. In April 2017, White House Chief Economic Advisor, Gary Cohn, and Treasury Secretary, Steven Mnuchin, presented an outline for tax reform, including cutting the number of income tax brackets, reducing the corporate tax rate to 15 per cent (down from 35 per cent) and eliminating tax reductions. As such, corporate tax reform and individual tax cuts are being worked on behind the scene by the US administration and leading Republican members of Congress. With further details planned to be published after the summer recess, Republicans vowed to conclude reform before the 2018 mid-term elections.
Yet, there is still a sense of discouragement and confusion arising from the US political sphere. Not only has the summer recess come to an end with still no agreed proposal from the Republican Party, the Republican Party has also failed to form any legislative achievements within a government in which they hold majority power. Tax reform presents Republicans with the same complications that were met on healthcare. Not only because the Democrats have said they will not back a tax bill that cuts taxes for the wealthiest Americans, but also because tax reform encompasses an array of issues ranging from income, property, inheritance, customs and other taxes that are imposed on citizens. Many fear that due to the nature and complexity of tax reform, Trump’s proclamations for reform may fail in the same way that the Republicans efforts to replace and reform the Affordable Care Act were deemed unsuccessful. Although numerous reports have been published that state the Trump Administration has a plan in the works, the reality is: there is not yet a plan that both ends of Pennsylvania Avenue can agree on. On September 13th, 2017 President Trump reiterated the only recent news on tax reform stating the Trump Administrations four tax-reform principles: provide tax cuts for the middle class, simplify the tax code, lower taxes for companies and incentivise companies to bring back investments held overseas.
So what can we hope for? For the international community, the outcome of tax reform or tax reduction in the United States will have an effect, whether large or small, on numerous countries and overseas corporations that seek to do business within, or out of, the United States. European nations, in particular, may need to react based on the decision made by Congress and the White House, and in addition, take into account the implications that may arise in the international economic realm. A lot depends on the legislative strategy of the President and the Republican Party.Both sides of the political aisle agree that the US tax code needs to be simplified for both businesses and individuals.
BritishAmerican Business, fully supports efforts to simplify the US tax code for businesses and individuals alike. However, there seems to be still a mountain to climb to achieve bipartisanship on tax reform. A second route, to pass a bill via reconciliation, would require the GOP to maintain discipline and learn from the healthcare reform initiative on communicating effectively from both the White House and Congress on the benefits of reform to middle class America. A scaled back version of current proposals would be the most politically viable option to pass both Houses. With so many other priorities being held in Congress and the White House, the opportunity to pass what has traditionally been politically low hanging fruit for Republicans, tax reform, would be disastrous to miss. It is not clear there will ever be a better opportunity.
Written by BAB Policy Assistant Ismini Tsakiris