Donald Trump’s tax reform


The Trump presidency will represent not only radical changes in the business relations between the economic powerhouse that is the United States of America and its primarily economic partners around the world, but apparently will also come with a never-seen before change in Fiscal Policy, not only for American taxpayers but also for many other stakeholders around the world.

Named “A Better Way”1, the Republican Party driven document is set to deliver a pro-growth agenda and will be the pillar of the upcoming Tax Reform set to arrive to Congress in February. If approved, this Reform will set the new outlook and posture of the United States not only in domestic issues but also in the international scope. This Tax Reform can be seen as a step backwards to everything that has been discussed and approved in relation to the OECD BEPS program.

The main objectives of the reform are as follow:

  • Job Creation and better opportunities for all American People (sharp wording shall be North -American people)
  • Simplification of the administrative burden derived from the current Tax Code
  • Reform the IRS into a service-driven entity (Customer services approach)
  • Perhaps the most important change proposed is to modify the country’s tax policy based on global income into a territorial tax system. In other words, income obtained from international operations will not be subject to tax impositions in the United States. Income generated from within the United States territory will be subject to taxes. This system today is used by various countries, most of them being in Central or South America and other parts of the World, with the peculiarity of being considered “Tax Havens”.
  • Corporate Tax Rates are reduced significantly from a 35% to 20%. The document states this to be the largest and boldest reduction in tax rates for corporations in the country’s history.
  • The document introduces a new write-off allowance. Investments in tangible and intangible assets will be subject to immediate deduction.
  • Operating losses will be subject to permanent carry-forwards. This means, operating losses can be amortized for indefinite time.
  • Individual Income Tax Rates will also be modified. The current seven brackets will be consolidated into three and will lower the top income tax bracket to 33%. The other two levels will be 0%-12% and 25%.
  • Retirement payments, mortgages and education expenses will also undergo significant changes.

In nature, these objectives are not only attractive but should be praised; however, the process to achieve such objectives may give rise to serious doubts.

This Tax Reform will have global scale repercussions as not only will it impact the United States, but also the rest of the World. Much expected reactions are awaited from the OECD and governments form around the Globe, since the likelihood of this Reform being ratified is strong taking into account that Republicans control the Congress of United States. 

Miguel Rodríguez , Auren Mexico

1 Original Document: “A Better Way. Our Vision for a Confident America”