Mixed reviews for tax overhaul proposal
Trump plans wide-ranging tax cuts, including 15 per cent drop in corporate rates
WASHINGTON United States President Donald Trump's new plan for broad-based income tax cuts debuted to mixed reviews, with businesses cheering as economists cautioned it could increase deficits with only modest gains in growth.
The largest US labour union denounced the new plan as a "con game" likely to result in cuts to essential public services and social spending.
Mr Trump and Republican lawmakers on Wednesday rolled out the new plan, seeking deep cuts to the corporate tax rates, which will officially fall from 35 per cent to 20 per cent, while abolishing estate tax on inheritances.
Mr Brad Close, senior vice-president at the National Federation of Independent Business, said the tax overhaul is crucial for jump-starting investment and job creation.
"Small businesses account for nearly half of gross domestic product and create two out of every three new jobs," he told AFP. "Small businesses have never fully recovered from the global crisis."
US business has persistently campaigned for lower corporate tax rates and for a simplified tax code, arguing that they restrain economic activity and prevent hiring.
The National Retail Federation said on Wednesday that a comprehensive tax overhaul, the first since 1986, will result in higher wages and more jobs.
It cited a recent internal study, which it said showed that cutting corporate taxes to 20 per cent would generate between 500,000 and 1.5 million new positions and could encourage foreign retailers to invest in the US.
Such a corporate tax rate will fall below the average of 22.5 per cent in industrialised nations.
Mr Trump called for a new "pass through" tax rate of 25 per cent, which could mean big savings for owners of sole proprietorships and partnerships, who now pay 39.6 per cent.
These sole proprietorships, limited liability companies and partnerships pay no income tax themselves. Their profits are instead "passed through" to their owners, who pay tax on them at the individual tax rates, Reuters reported.
Under the proposal, typical middle-class families will have less income subject to federal tax. Mr Trump said the first US$12,000 (S$16,300) earned by an individual and the first US$24,000 by a married couple will be tax-free.
Mr Richard Trumka, president of the American Federation of Labour and Congress of Industrial Organisations, criticised the tax proposal.
"The tax plan Republicans put out today is nothing but a con game, and working people are the ones they are trying to con," he said in a statement.
"There always seems to be plenty of money for millionaires and big corporations but never enough money to do anything for working people."
According to Mr William Cline, senior fellow at the Peterson Institute for International Economics, gauging the consequences of the tax plan will depend on how it affects the federal budget and revenues.
"It might have some stimulative effects on growth, but my sense is that the growth impact will not be sufficient to make the tax cuts pay for themselves," he told AFP.
"Looking back at the past, I would not be too enthusiastic."
The Trump administration vows that the increased economic growth will more than make up for lost revenues.
On Wednesday, the Committee for a Responsible Federal Budget, a non-partisan tax research body, said a rough preliminary estimate was that the proposal could lower tax revenues by US$2.2 trillion over a decade.