White House tax proposals call for sharp cut in corporation tax

Republicans in the US Congress and President Donald Trump have a drawn up major plans for tax reform in the country, including a proposal to slash taxes for corporations but an increase in the lowest rate of personal income tax.

The proposals represent the first stage of a tax reform process which is expected to face opposition from the Democrats in both the House and Senate, following a stalemate on another major piece of legislation this year, the repeal and replacement of Obamacare.

Tax for corporations would be lowered to 20% from the current near 40% rate, though the new proposal is higher than the 33% rate originally proposed by House Republicans pre-election.

with a simplification of rates for individuals' income taxes to just three, with an increase in the bottom tax rate from 10% to 12%, but then just two more rates of 25% and 35%.

A higher 'zero tax' bracket is intended where no personal income tax will be paid on the first $24,000 of income earned by a married couple and $12,000 earned by a single individual.

The plan would seek to help families by calling for an increased child tax credit and opening it to families with higher incomes. The credit currently is $1,000 per child.

'Typical families' who come under the existing 10% tax bracket, the White House said, were expected to be better off under the framework "due to the larger standard deduction, larger child tax credit and additional tax relief that will be included".

Trump’s tax reform policies were a key platform during last year’s election campaign, in which he argued that many companies were taking jobs away from the US to countries where the corporation tax was lower.

"Too many in our country are shut out of the dynamism of the US economy, which has led to the justifiable feeling that the system is rigged against hardworking Americans," the White House 'tax framework' document read.

"With significant and meaningful tax reform and relief, we will create a fairer system that levels the playing field and extends economic opportunities to American workers, small businesses, and middle-income families."

US Treasury yields jumped after the details of the tax overhaul were unveiled, with the 10-year Treasury yield climbing to a two-month high.

The unified tax proposals offered more detail than before, said Paul Ashworth at Capital Economics, "but there are still a number of missing pieces that make it hard to estimate the overall cost of the plan accurately".

He noted that the framework was "almost identical" to the House Republicans’ “better way” plan released ahead of last year’s election, albeit with the infamous border adjustment tax stripped out.

"Today’s proposals could cost up to $3trn. But this is just an initial proposal and, if the passage of earlier large tax bills is any guide, the tax cuts will be scaled back before a final bill is passed."

Ashworth said the bulk of tax savings will go to high income earners, despite White House bluster to the contrary, but he said "that is hard to avoid when the top 10% account for 70% of all income tax revenue".

Although the prospect of lower taxes promise a bounty for stocks, analyst Joshua Mahony at IG was even less optimistic, as "Trump has yet to deliver on any major policies given the constant rebuttals from the Republican dominated Congress".

"There is a good chance that these tax reforms are going to be as difficult to pass at the health reforms, with issues such as the controversial border adjustment tax likely to provide significant hurdles along the way. For dollar traders, much of the focus will be upon the potential impact a repatriation of foreign cash back into the US could have upon the dollar. However, to some extent this effect could be limited given that much of this is held in US denominated financial instruments."