Anticipation of U.S. President Donald Trump’s plans for big corporate and individual tax cuts spurred Wall Street to record highs Tuesday, and sent Asian markets soaring overnight.
Trump is planning to unveil his tax plans Wednesday, with aides saying he will ask Congress to slash the current 35 percent rate down to 15 percent, a pledge he first made during last year’s presidential election campaign.
White House spokesman Sean Spicer said the U.S. has been “uncompetitive” against other countries in attracting new businesses, “largely because of our rates.”
U.S. lawmakers have for years vowed to adopt broad tax reforms, but the efforts have foundered. Congress has been unable to reconcile competing demands to eliminate tax breaks for some corporate and individual interests and raise taxes on others.
Trump’s tax plans are likely to face months of hearings and debate in Congress, where his Republican colleagues have their own ideas on how the tax code ought to be reshaped. Some lawmakers have expressed concerns that Trump’s call for a big corporate tax cut would balloon the nearly $20 trillion in long-term debt the U.S. has accumulated if there are not corresponding measures to raise more revenue.
U.S. Treasury chief Steven Mnuchin said Monday, “The tax reform will pay for itself with economic growth” that would boost tax revenues. Mnuchin called for tax simplification as well, saying U.S. reforms ideally would let taxpayers file their annual tax returns on a “large postcard.”
The argument that tax cuts pay for themselves has little support among economists.
The U.S. economy, the world’s largest, grew at a tepid 1.6 percent pace last year, a figure Trump is hoping to boost to 3 percent a year, which the United States has not reached since 2005.
Tax experts say the 35 percent U.S. corporate tax rate is the highest among the world’s 35 industrialized nations, although U.S. corporations rarely pay that much because they are permitted to deduct their business expenses from their revenues before. A number of profitable companies pay no U.S. income taxes.
When the 35 percent rate is added to the average state corporate tax rate, the figure reaches 38.9 percent, which ranks third in the world among 188 countries surveyed by the Washington-based Tax Foundation. The U.S. figure trails only that of the United Arab Emirates at 55 percent and the U.S. territory of Puerto Rico at 39 percent.