President Trump's Tax Reform

DOI: 10.20542/0131-2227-2019-63-6-38-48

L. Lykova (,
Institute of Economics, Russian Academy of Science, 32, Nakhimovskii Prosp., 117218, Moscow, Russian Federation

Abstract. The paper analyses the main elements of the US tax reform 2017 concerning corporate income tax and individual income tax. This article describes the most significant changes in corporate taxation such as the imposition of the flat rate instead of progressive tax scale and changes in the tax base estimation (bonus depreciation, interest deductions, net loses deductions). Special attention is paid to changes in the international financial flows taxation and the imposition of the modified territorial tax system. This novation can modify the direction of international flows of royalty and services payments. New deemed repatriation tax for previously accumulated profits of foreign subsidiaries may attract companies to move them home and increase investments in the US. This paper examines modifications of the individual income tax (marginal statutory tax rate cut, almost double increase of standard deduction and changes in the itemized deductions, the increase of child benefits, the increase of exemption level of the individual alternative minimum tax and others). The changes of inflation indexing are also being discussed. It is shown that most of taxpayers will receive a tax cut due to the major provisions of tax reform. But after-tax income will rise greater for high-income households compared to low-income households. Several changes made in the pass-through businesses and income taxation can significantly affect the US labor market and increase horizontal inequality according to the kind of income (wages and salaries or business income). The GDP growth estimations existing in the economic literature sufficiently vary according to the considered factors. The main problem is the possibility of the crowding out effect of the deficit financing.

Keywords: corporate income tax, individual income tax, tax reform, federal budget, tax rates


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For citation:
Lykova L. President Trump's Tax Reform. World Eonomy and International Relations, 2019, vol. 63, no. 6, pp. 38-48.

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