Donald Trump has proposed the biggest US tax overhaul in three decades, which would slash rates on businesses and lower the top income tax rate.
Donald Trump's plan would cut corporate income tax rates to 20 percent. Photo: AFP
The US president's plan would lower corporate income tax rates, cut taxes for "pass-through" businesses - which tend to be small firms - reduce the top income tax rate for individual Americans and scrap some widely used tax breaks including one that benefits people in high-tax states dominated by Democrats.
It was forged during months of high-level talks among Mr Trump's aides and top Republicans in Congress, but offered scant details about how to pay for the cuts without dramatically driving up federal deficits.
Mr Trump has said the tax overhaul would provide tax relief to middle-class Americans, and the White House said that under the proposal typical middle-class families would have less of their income subject to federal income tax.
The plan would lower the top individual rate from to 35 percent from 39.6 percent, but also roughly double the standard deduction - a set amount of income exempt from taxation - for all taxpayers.
Democrats said the plan would expand the federal deficit in order to deliver tax cuts to wealthy Americans rather than the middle-class families that Trump and Republicans say they are trying to help.
Republicans argue that the tax cuts would be offset by new revenues raised from eliminating tax loopholes and would drive more robust US economic growth.
Republicans proposed eliminating some existing tax deductions, though they retain deductions for mortgage interest payments and charitable deductions. They proposed scrapping the deduction for the amount a taxpayer pays in state and local taxes, which could hurt people in high-tax states including California and New York that tend to vote Democratic.
The plan foresees a 20 percent corporate income tax rate, down from 35 percent now. Mr Trump had initially proposed a 15-percent rate. Companies in the United States pay high taxes by global standards and they have been seeking a tax cut for years, even though many of them pay much less than the headline rate due to loopholes and tax breaks.
There would be a top 25 percent rate for small businesses and firms organised as "pass-through entities" such as limited liability corporations. The Brookings Institution think tank estimates that 95 percent of all US businesses are "pass-throughs".
The proposal was embraced by the US Chamber of Commerce business lobbying group and an organization called the RATE Coalition representing large American companies including AT&T Inc, FedEx Corp, Home Depot Inc, General Dynamics Corp and Walmart Stores Inc.
The coalition, which said it represents firms employing over 30 million workers in all 50 states, said America's corporate tax rate is the highest in the industrialized world and "out of step with global reality."
The tax plan was outlined the day after the Republicans' top legislative priority, an overhaul of the US healthcare system, collapsed in the Senate, while another key item on Mr Trump's wish list, infrastructure spending, has yet to materialize.
- Reuters