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Tax Reform Slow Going, Centers Cuts And New Breakdowns

Written by David Jones on April 18, 2017

In light of Congress’s failure to repeal the ACA – a core aspect of Trump’s platform – Trump and the Republicans are in need of a victory, and they’re pinning their hopes on tax reform. Repealing the ACA would also resolve the tax ramifications that came with healthcare, but now Republicans will need to strike more broadly against the current code. They’ll also need to partner across the aisle if they want to get it done.

Tax Bracket Restructuring

One facet at the heart of Trump’s tax reform plans is a restructuring of the current tax bracket system. Right now, when you calculate your tax bracket, you’re assigned to one of seven possible population segments, based on your income and filing status (whether you’re filing as a single individual or married and filing jointly, for example). The lowest bracket is 10 percent and the highest is 39.6 percent.

What Trump and the Republicans hope to do by restructuring the tax bracket system is reduce the total number of tax brackets to just three. These would most likely fall at 12 percent, 25 percent, and 33 percent and would significantly reduce the tax burden on the wealthiest Americans. Democrats are unlikely to be friendly to this plan which they view as punishing lower income Americans for the wealthy’s desire to pay less into the system.

Barriers To Borrowing

Democrats aren’t Trump’s only problem when it comes to tax reform. In order for Trump to reduce overall tax rates, he’ll need to propose reasonable and economically sound ways to fund other projects, such as his much-discussed border wall. Though many Republicans align with Trump’s desire to put up such a wall, with the plan to make Mexico pay for it being unlikely, they’ll want to see proof Trump can carry it out without borrowing heavily.

Negotiation Nation

Ultimately, Trump – who built his reputation as the great negotiator in business – has managed to turn himself into a president without a majority. Simply put, though Republicans control both houses of Congress, Trump’s unpopular policies have driven a wedge through the party. Even Trump has sworn he’ll go after the far-right Freedom Caucus during the 2018 midterm elections as their stance on healthcare reform, namely that the proposed bill wasn’t conservative enough, contributed to its spectacular failure.

What’s a president to do? Agribusiness companies, in particular, are hoping for successful corporate tax reforms as they do battle with low commodities prices, but they may be a hard sell elsewhere.

Trump hopes to lower the overall corporate tax rate to 15 percent, and Democrats are unlikely to budge. He’ll have to get, at a minimum, the full Republican wing of Congress to agree on such a proposal in order to make it stick, and that hasn’t gone well for Trump so far.

Ultimately, Trump may need to take tax reform slowly in order to shepherd it through Congress, but most importantly he can’t rely on the kind of ultimatums that brought down the ACA repeal. Obama spent several years working with members of both parties to get the ACA passed and didn’t bring it to a vote until he was confident it could succeed. This is the approach Trump will need to take on taxes.