WASHINGTON – President Trump isn’t draining the swamp. He recently unveiled his long-awaited “tax reform” package, and although many crucial details were missing (for example, the income brackets), he was full of accolades. “This is a revolutionary change,” he said.
Well, not yet.
The federal income-tax system – almost everyone seems to agree – is a mess. It features relatively high nominal rates (up to 39.6 percent on individual income and 35 percent on corporate income) whose impact is offset by a baffling array of tax breaks, loopholes, preferences or “tax expenditures,” depending on which buzzword is in fashion.
A truly revolutionary tax overhaul would eliminate most existing tax breaks and use the resulting surge in revenues to lower rates sharply. But Trump may only partially rely on this process. He may also borrow to cut taxes. The crux of the debate is whether the tax cuts will pay for themselves, through higher economic growth, or whether they will simply add to the debt.
Economist Diana Furchtgott-Roth of the Manhattan Institute, a Trump supporter, argues that reducing the top corporate tax rate to 20 percent will cause more internationally based companies to locate in the United States and fewer American firms to flee abroad to lower-taxed countries.