The U.S. tax reform framework is facing adjustments. It is accused of increasing the budget deficit and benefiting the rich

The U.S. tax reform framework is facing adjustments. It is accused of increasing the budget deficit and benefiting the rich. The U.S. tax reform framework is being criticized and facing adjustments. It is accused of increasing the budget deficit and benefiting the rich. …

>The U.S. tax reform framework has been criticized and faces adjustments

>Accused of increasing the budget deficit and benefiting the rich

On October 10, U.S. President Trump said that since the tax reform framework released last month has been criticized by many parties, he plans to revise his tax reform plan in the next few weeks.

On September 27, the White House released a tax reform framework. In just half a month, this framework was criticized by many parties. Critics believed that this tax reform framework increased the budget deficit and benefited the rich.

Trump claimed that the core framework of tax reform, which he had waited for 5 months to introduce, was a historic opportunity. After the tax reform framework was announced, Treasury Secretary Mnuchin, White House National Economic Council Chairman Cohen, and senior Republicans who participated in the drafting of the framework frequently conducted "road shows" in major media and industry organizations. Trump and Vice President Pence also visited central states such as Indiana, Michigan and Wisconsin.

When attending an event of the National Association of Manufacturers in Washington, the capital, Trump reiterated that the tax reform framework will provide "the lowest tax rate ceiling for small and medium-sized enterprises in at least 80 years, which is a rocket-level fuel for economic take-off." He believes that tax reform will revitalize American industry and reflect the concept of "America First."

But in fact, the current tax reform plan is resisted by both Republicans and Democrats. Senator Bob K. specifically stated that he would oppose any bill that increases the deficit. The Republican just got into a very public Twitter spat with Trump over the weekend.

Democrats accuse that cutting corporate taxes, lowering tax rates for high-income people, and abolishing the inheritance tax will benefit the rich. Meanwhile, Republicans' tax cuts without eliminating tax loopholes would result in a $693 billion budget deficit and a $20.4 trillion national debt.

Although Trump claims that the Republican tax reform framework will benefit all income groups, the U.S. Tax Policy Center found that the biggest winners will be the richest 1% of American taxpayers, who will receive more than 50% of the benefits of tax reform. Over time, the plan will increase the tax burden on the middle class by 28%. One major source of benefit for the wealthy from tax reform is the elimination of the estate tax.

The tax reform framework lacks many key details, such as the starting points for the three levels of personal income tax and what means will be used to make up for the reduction in fiscal revenue caused by tax cuts. Although Treasury Secretary Mnuchin explained that tax reform will boost U.S. economic growth to 2.9% or higher in the next 10 years, it will generate $2 trillion in additional fiscal revenue, which can eliminate at least $1 trillion in federal deficits. However, some economists criticized that there is no clear evidence of how tax cuts can promote economic development, and it is still not appropriate to be too optimistic.

In addition, a very controversial item in the tax reform framework also puts the passage of tax reform at risk. The framework requires the elimination of state and local personal income tax deductions from federal taxes. The states most affected are all states that supported Hillary Clinton in last year's election. This is interpreted as Trump's use of tax reform to exclude dissidents.

Trump said at the White House: "We will adjust the tax reform in the next few weeks to make it more effective. I tell you, this will become very, very popular."

Goldman Sachs said that the details in the tax reform framework announced at the end of last month were generally in line with previous expectations, but the net reduction in personal tax burdens was smaller than previously disclosed by media sources, and the corporate tax burden was generally consistent with media reports. The framework offers less tax cuts than expected. Independent analysts say that 30% of households with incomes between $50,000 and $150,000 will see a tax increase.

It is unclear whether Trump will release a new version of the tax reform outline. Some pessimists believe that tax reform will ultimately not be implemented. Still, Wall Street remains bullish. Goldman Sachs believes that the tax reform has a 65% chance of passing in 2018. Next, we need to pay attention to the Senate budget resolution's instructions on tax cuts. If tax reform passes, the stock market will be pushed higher.

Nomura economist Alexander also expects the tax cuts to be passed in early 2018. However, the final tax reform may be much smaller than the current plan of Trump and Republicans. In other words, if Congress gives the green light, the tax reform billed by the White House as "the largest in history" may have to be scaled back.

The current favorable factor for the passage of Trump's tax reform is that the U.S. Senate Budget Committee approved the fiscal year 2018 budget proposal on October 6, hoping to cut federal spending by $5.1 trillion in the next 10 years and allow the tax reform to increase the deficit by $1.5 trillion during the same period. This proposal is obviously beneficial to advancing the tax reform process. However, after all, the tax reform framework is likely to reduce government revenue by US$1.5 trillion within ten years. In order for the House and Senate, especially the Senate, to vote to pass the tax reform bill, either the budget must be expanded or the scale of tax cuts must be reduced.

If both the House of Representatives and the Senate can pass a budget resolution, it will provide room for a tax cut of US$1.5 trillion, and the possibility of implementing tax reform next year will greatly increase.