Donald Trump vows to cut US corporate tax rate to 20%
US president plans sweeping overhaul of tax code in bid to attract American companies
US president Donald Trump has proposed the most sweeping overhaul of the US tax code in decades, vowing to cut the corporate tax rate to 20 per cent in a bid to spur economic growth and encourage US companies to locate and invest in the United States.
Speaking at a rally in Indianapolis, Mr Trump vowed a “revolutionary change” and promised to “dramatically cut the business tax rate so that American companies and American workers can beat our foreign competitors and start winning again.”
“We will reduce the corporate tax rate to no higher than 20 per cent . . . which is substantially below the average of other industrialised nations,” he told the crowd in Indiana. “This is a revolutionary change, and the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labour, and as wages start going up at levels you have not seen in many years.”
He said: “When our companies move to other countries, it’s our loyal American workers who get hurt.
“It’s time to take care of our people, to rebuild our nation, and to fight for our great American workers.”
The proposal is the result of months of intense behind-the-scene negotiations between the Trump administration, the Ways and Means Committee in the House of Representatives, and the Senate Finance Committee, as the Republican Party strives to score a legislative victory before the end of this Congressional term.
While the nine-page tax framework is the result of this collaborative process, it marks the first stage in a legislative process that could take months, with much of the detail likely to be thrashed out in the relevant congressional committees before the end of the year.
On the issue of taxing overseas profits, the US intends to move from a worldwide to a territorial system. Companies which harbour profits overseas - such as many of the tech giants - will be encouraged to repatriate those profits through a once-off tax amnesty.
Though today’s proposal contained no figures, the Trump administration is proposing a two-tiered tax holiday on profits that have already accumulated offshore - one rate will be applied to liquid assets such as cash which are brought back to the United States, while a lower rate will be applied to illiquid assets.
It is thought that the payment of this one-time tax would be spread over a number of years.
Mr Trump also announced a reform of the individual tax system, including a reduction in the number of individual tax bands from seven to three. The top individual tax rate will be cut from 39.6 per cent to 35 per cent, though the door has been left open for a fourth, higher bracket for the wealthy.
Also under consideration is the elimination of the current system of itemised deductions - one of the main reasons behind the complexity of the US tax code - and instead doubling the standard deduction.
Among the major challenges facing politicians as they turn to the detail of the proposal in the coming months is how to pay for the proposed trillions of dollars in tax cuts, with the Trump administration arguing the boost in economic growth will compensate for any loss in receipts.
Irish tax experts said they would await the detail of the plan as it passes through Congress but raised concern about the cut in corporate tax rate.
“Unquestionably, a lower US corporation tax rate will make it more attractive to do business in the US,” said Peter Vale, tax partner at Grant Thornton. “However, the majority of US companies are in Europe for commercial reasons, not for tax. In choosing which European country to base their operations, tax is then undoubtedly a factor.
“As Ireland continues to have the lowest corporate tax rate, we would see the risk of a significant outflow of US investment from Ireland as low,” he said.
Joe Tynan of PwC said that, while for Irish companies selling into the US any reduction in the tax rate will be beneficial, for US companies in Ireland, the key issue will be how foreign profits will be taxed - the details of which have yet to be worked out.
US business groups, such as the American Chamber of Commerce, welcomed the tax move, while the dollar strengthened ahead of the announcement.
To coincide with Mr Trump’s speech, members of both the Republican and Democrat parties held “tax” retreats on Wednesday morning where the detail of the new proposal was discussed.
In a boost for the Republican leadership, the House Freedom Caucus - a powerful group of 40 rightwing Republicans - backed the deal. The group had pushed for an even lower corporate tax rate of 16 per cent.
“President Trump has delivered a forward-looking tax reform framework that will let hard working Americans keep more of their money, simplify our system, end carve outs for special interests, and will help make our businesses competitive abroad,” the group said in a statement. “The Freedom Caucus looks forward to sending a final bill based on this framework to President Trump’s desk as soon as possible.”
Congressman Richard Neal, the senior Democrat on the Ways and Means committees, said that “despite the Republicans’ claims that their tax plan is all about the middle-class, it is instead a poorly disguised tax cut for the rich.”