Trump’s Tax Plans: A 15% Corporate Rate and 25% Small Business Deduction for Economic Growth

Trump’s Tax Plans: A 15% Corporate Rate and 25% Small Business Deduction for Economic Growth

As House Republicans finalize a budget resolution to support their legislative goals, discussions are intensifying around critical tax cuts to incorporate in the proposed package. Chief among these is President Donald Trump’s persistent demand to lower the corporate tax rate to 15%. Such a reduction promises to enhance the competitiveness of the U.S. economy, which continues to grapple with the repercussions of previous anti-growth policies.

Research from the Tax Foundation indicates that implementing a 15% corporate tax rate would result in substantial increases in GDP, wages, and employment. This adjustment would create a more favorable environment for investment and growth.

The Tax Cuts and Jobs Act, which took effect in 2018, reduced the corporate tax rate from an astronomical 35% to 21%. This shift placed the U.S. tax rate closer to the global average, yet not at its most competitive level. According to a study conducted by the National Bureau of Economic Research, U.S. corporations increased domestic investment by an average of 20% in response to the tax cuts.

The reduced corporate tax rate has been crucial in boosting U.S. living standards, which have surpassed those of many other developed countries over recent years. Advocates argue that lowering the corporate tax rate to 15% would catalyze another wave of economic success, benefitting both shareholders—many of whom are regular Americans investing in stocks—and the workforce.

Impact on Small Businesses

A significant portion of small businesses, approximately 1.5 million, operate as corporations and would directly benefit from a reduction in the corporate tax rate. Additionally, small enterprises that provide services to corporations would experience increased opportunities and potential revenue growth as a result of this tax revision.

However, it is essential to consider the majority of small businesses that are organized as pass-through entities and taxed at individual rates. As part of the Republican tax reform, there should be initiatives to extend similar relief to these businesses, comparable to the benefits available to incorporated firms.

Under the Tax Cuts and Jobs Act, unincorporated small businesses became significant beneficiaries, allowed deductions of 20% and enjoying accelerated expensing along with lower tax rates. This legislation invigorated the entrepreneurial spirit across the nation.

On average, nearly 20 million small businesses capitalize on the TCJA deduction each year. Unfortunately, these significant provisions set to expire at year-end have raised concerns among entrepreneurs regarding future tax burdens.

Raising the Small Business Deduction

To maintain fairness in the tax code, lawmakers should not only lower the corporate tax rate to 15% but also increase the small business tax deduction from 20% to 25%. For instance, a small business with an annual income of $200,000 would see its effective tax rate align more closely with that of larger corporations when considering this enhanced deduction.

Moreover, it would be prudent for legislators to raise the income threshold for eligibility of small businesses to access this deduction. Currently, for non-manufacturing single filers, the deduction begins phasing out at around $200,000 of earnings. Expanding this threshold would enable a broader spectrum of middle-class small businesses to receive tax benefits, encouraging growth and ensuring they can compete on an equal footing with larger corporations.

Economic Growth Potential

Implementing these corporate and small business tax cuts could catalyze an economic boom, mirroring the positive outcomes witnessed following the original Tax Cuts and Jobs Act in 2017. Since that reform, inflation-adjusted tax revenue, excluding tariffs, has shown significant growth. Critics who have declared fiscal crises following Republican tax cuts have consistently underestimated their potential impact.

Moreover, it is important to highlight that spending, rather than tax cuts, drives the current deficit issues. Federal expenditures have surged from approximately $4 trillion annually to nearly $7 trillion, largely due to mismanaged and inflationary spending practices. Fortunately, the GOP budget compromise proposes targeted spending reductions totaling $2 trillion aimed at rectifying the fiscal trajectory.

As lawmakers gear up for debates over tax cuts to include in their historic reconciliation bill—one that will undoubtedly shape the economic landscape for the next decade—everything should be under consideration. Nevertheless, the focal points must be the proposed 15% corporate tax rate coupled with a comprehensive 25% small business deduction.

A Vision for Future Prosperity

By prioritizing these tax strategies, government leaders can create an environment where businesses flourish, and economic growth becomes a tangible reality for all Americans. The proposed changes are not merely fine-tuning the existing system; they represent an opportunity to revitalize an economy that benefits everyone.

These adjustments will not just bolster larger corporations but also empower thousands of small businesses that are the backbone of the U.S. economy. As the country moves forward, savvy tax strategies will be essential for ensuring a bright financial future for all citizens.

Alfredo Ortiz is the CEO of Job Creators Network.