Why Trump's plan for corporate taxes is a 'magic unicorn'

The article highlights President Trump's proposal to reduce corporate tax rates from 35% to 15%. Most detractors, including Senate Finance Committee Chairman Orrin Hatch, believe the idea is impractical and should not be approved by Congress. He claims that the plan will increase the deficit after ten years (Mui).

""It cannot even begin to get through Congress,"" said George Callas, Ryan's senior tax counsel. ""This is something that can't be done"" (Mui). Those for the idea such as the secretary of the treasury Steven Mnuchin argue that if administered, the tax will pay for itself as the proposal will generate economic growth. The increased economic growth will then lead to higher tax revenue from rising wages, higher employment, and strong business sales (Mui).

"You could have as high as a $2 trillion difference in earnings depending on what you think is going to be the growth function," Mnuchin said at a speech in Washington last week. "The plan will pay for itself with growth" (Mui).

Economic growth possibilities estimated by the administration stand at 3 percent although the president floated as high as 6 percent. Analysts say that such as economic growth rate is a strong showing, but it is unlikely to offset the dramatic reduction in corporate tax (Mui).

According to Ljungqvist and Smolyansky (31), argue corporate tax cuts have no effects on economic growth unless the tax cuts are implemented during a recession . A study by Gray, Holtz-Eakin, and Smith (2) illustrates that a corporate tax reduction reform can make the United States internationally competitive. However, positive economic growth can only be realized when the tax cuts are accompanied by revenue neutrality, reduction in federal statutory rate and a complimentary territorial international taxation regime (Gray, Holtz-Eakin, and Smith 2).

In conclusion, President Trump’s bill is unlikely to pass the Congress as it is not accompanied by the support for other ways to raise revenue such as controversial border adjustment tax. As a result, senior tax writers are referring to the prospect of a corporate tax reduction as a “magic unicorn running around” (Mui).

Work cited

Gray, Gordon, Douglas Holtz-Eakin, and Cameron Smith. “Macroeconomic Impacts of Corporate Tax Reform.” American Action Forum (2012): 1–8. Web.

Ljungqvist, Alexander, and Michael Smolyansky. To Cut or Not to Cut? On the Impact of Corporate Taxes on Employment and Income. Washington, D.C.: 1-63., 2016. Web. Finance and Economics Discussion Series.

Mui, Ylan. “Why Trump’s Plan for Corporate Taxes Is a ‘Magic Unicorn.’” CNBC 25 Apr. 2017. Web.

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