Trumping the Tax System

Imagine if the average American had an additional $652 a year to spend as he or she wished. For many people, this extra money would go a long way. Now consider that this money would not come at anyone’s financial expense. While this may sound too good to be true, this figure is the average amount the Trump administration’s tax plan would save families in the 95th percentile of income earners and below.

The Trump administration has billed this proposed tax cut as the “largest tax reform” in U.S. history. The plan has come under sharp criticism from politicians and constituents claiming the tax cuts disproportionately favor the rich. Despite these criticisms, the Trump administration's tax plan would benefit people and businesses across the economic ladder.

Many liberal politicians have dismissed the tax cuts, claiming that they give the rich an undeserved break. However, the idea that the “rich don't pay their fair share” is a myth. The top 10 percent of earners was responsible for 45 percent of all taxes on income, paying an average rate of 26 percent of their income. This is in stark contrast to the bottom 50 percent of earners, who pay six percent of total taxes at an average rate of four percent. This does not suggest that the poor don't pay their fair share, but rather that the pervasive idea that the wealthy are somehow the winners of our country's tax system is erroneous. Therefore, the Trump administration’s 4.6 percent tax cut for individuals making over $418,000 a year will not unfairly skew the tax system towards the rich, but rather provide the rich with tax relief that will encourage them to reinvest into society, and in the process benefit people across the economic ladder.

The single most influential change to tax policy is the reduction of the corporate tax rate from 35 percent to either 15 or 20 percent. While this may seem to be a handout to large multinational corporations, upon closer rumination it is anything but that. The U.S.’s corporate tax rate of 35 percent is the third highest in the world. The most obvious consequence of this high rate is that it encourages companies to relocate overseas.

For example, Johnson Controls, a company worth $23 billion, moved its headquarters from Milwaukee, Wisconsin, to Ireland in 2016. It cited the fact that the move would save the company about $150 million in U.S. taxes annually as its reason.

When a company relocates overseas, the economy loses the jobs, growth, and investment potential the company possesses. This is a lose-lose situation for both the American government and the American consumer, as they both suffer the effects of reduced investment, job availability, and economic growth.

A high corporate tax rate also incentivizes companies to store their earnings overseas in order to avoid heavy taxation. A study by the Congressional Joint Committee on Taxation estimated that “untaxed foreign earnings of American companies totaled approximately $2.6 trillion in 2015.” The same study found that if a corporate tax cut were offered to these companies on the condition that they returned this cash back to the U.S., $663 billion would be reinvested into job growth and business expansion in the United States.

Not only will the proposed reform stimulate American corporations to stay wholly American, but it will provide some much needed relief to small businesses. A recent survey by CNBC indicated that the number one concern for business owners is their taxes; a whopping 42 percent believed that a tax break as large as the one offered could have a tremendously positive impact on the small business economy.

Currently, mom-and-pop shops across the U.S. pay a rate from 15 to 40 percent of their individual income rates. The repeal of Bush-era tax cuts left businesses reeling at added expenses in a crippled economy. The newest tax reform would offer a uniform 15 percent tax rate regardless of their affiliations, such as partnerships, sole proprietors, or freelancers. This tax reform leaves millions of small business owners with a larger profit and additional revenue that could be used to reinvest into the company.

Opponents claim tax cuts would reduce funding toward essential government programs surrounding public health, medical research, climate change, etc. However, less money doesn’t mean these programs will become obsolete. For each one, there’s almost always a political backer willing to advocate for the program’s necessity to the national government and fight to keep it viable, even with reduced funding. The Heritage Foundation finds that there are somewhere from 79 to 140 federal programs currently fighting to reduce poverty, each with overlapping incentives.

For instance, historian Allen J. Matusow of Rice University wrote that Medicare and Medicaid have done considerably little to benefit the quality of living for the elderly (one of their main objectives), serving instead to raise health care costs for taxpayers. With an annual price tag of about $600-900 billion on their own, Trump’s intention is to eliminate spending where it’s wasteful, not vital.

American ideals boast diligence, entrepreneurship, and a sort of blind aspiration that’s produced some of the most brilliant minds in history. However, this enormous capacity for innovation is often limited by a single materialistic thing: money. Tax cuts are essential for this competitive economy to combat the relocation of American corporations and stimulate the rise of small businesses, the crux of our national pride. The public is done vouching for an exhausted agenda: they need to see some real tax cuts, real soon.