Trump's Tax Reform Dissected

Two weeks ago, the Trump administration presented a detailed version of one of Trump's most important election promises: a tax reform. Not only does the Trump administration propose to lower corporate taxes, their proposal also includes other tax reforms. However, the trouble is that Trump wants to lower taxes without cutting spending. As a result, the budget deficit and the enormous public debt are bound to swell. And, moreover, what does all this have to do with the Federal Reserve?

A Breakdown of Trump's Tax Proposal

On September 27, the White House published a complete proposal for tax reform, which is titled "Unified Framework for Fixing Our Broken Tax Code." You can find the complete proposal here.

Briefly summarized, Trump's tax proposal consists of:

  • A lowering of the corporate tax to 20%
  • A ceiling for corporate taxes on small businesses of max. 25%
  • A one-time discount on the corporate tax when multinationals repatriate money that is currently being held abroad / off-shore
  • For the next five years, businesses are allowed to immediately write off capital expenditures (lowering, in the short run, the payable corporate tax)
  • The number of tax brackets of the personal income tax is reduced from seven to three (12%, 25% and 35%)
  • The standard deduction on personal income taxes is being doubled and the deduction for having children will be increased
  • Many existing tax deductions are eliminated or lowered
  • The death and estate tax will be eliminated

The tax reform is bound to be costly. Not only in the first year, but also in the years following.

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