The Trump Administration released a new framework for tax reform Wednesday, and retail could see benefits and breaks if it passes.
According to a statement from the Treasury Department, the new framework would create a lower tax rate and structure for small businesses, limiting the maximum tax rate to 25 percent, compared to the current top rate of 39 percent.
It would also lower the corporate income tax rate to 20 percent from the 35 percent it is now, which the Administration says would help American companies be better able to compete. For at least five years, businesses would also be able to immediately expense the cost of new investments, which is expected to boost the economy.
And in keeping with his Make America Great Again promise, President Trump’s tax plan “ends the perverse incentive to offshore jobs and keep foreign profits overseas.” It also, according to a one-pager on the plan, “brings home profits by imposing a one-time, low tax rate on wealth that has already accumulated overseas so there is no tax incentive to keeping the money offshore.”
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In short, the Administration says the tax reform will broaden the tax base, close loopholes and grow the economy. Little has been said yet about where the funds to accommodate these cuts will come from, and analysts claim the breaks will serve to swell the federal debt and deficit.
“This unified framework is the foundation Congress will use to craft legislation around middle-income tax cuts, a simpler and fairer tax code, and the most competitive business tax rates, so American companies of all sizes can create jobs, give their workers a pay raise and grow the economy,” Treasury Secretary Steven Mnuchin said.
Retailers and the organizations that represent them appear to be pleased with the proposal and what it promises to bring for the industry.
“The tenets of the outlined proposal will result in greater economic growth and job creation, while also simplifying the tax system in a manner that will benefit all Americans, including millions of consumers,” said Joshua Baca, spokesperson for Americans for Affordable Products (AAP).
The Retail Industry Leaders Association (RILA) said the new tax plan would keep companies competitive in the global marketplace and put money back in family budgets.
“Despite being one of our country’s top economic drivers, America’s retailers face an average domestic tax rate of 36.7% –nearly 10 percentage points higher than the average for all industries,” RILA executive vice president of government affairs Jennifer Safavian, said. “Tax reforms that scrutinizes credits and deductions not applicable to all taxpayers and flattens rates for all will spur investment, job creation and consumer savings.”
Outside of retail, critics of the new framework say the plan slashes taxes not just for businesses, but also for the wealthy, though a look at the Treasure Department’s one-pager claims otherwise.
The document says the tax framework will lower tax rates for individuals and families, shrinking the current framework from seven tax brackets into three—12 percent, 25 percent and 35 percent. The top individual income tax rate would come down to 35 percent from 39.6%, and there would also be the potential for an additional top rate for highest-income earners “to ensure that the wealthy do no contribute a lower share of tax paid than they do today.”
However, only those earning upward of $418,000 pay the top individual tax rate, so that break wouldn’t be for the bulk of workers. The plan also eliminates the estate tax, which only applies to those with assets valued above $5.49 million.
The Trump Administration hasn’t had much success in the legislative department, despite a Republican-controlled White House and both chambers of Congress. Democrats, many of whom aren’t in support of the plan’s potential to balloon the deficit and provide tax cuts for the wealthy instead of the middle class, reportedly weren’t consulted in drafting the plan but the Administration will likely need them to get the framework passed.