Paul Ryan recently spoke to CNN and threw light on the tax reform bill that will be considered by the House starting Monday. He says that the entire objective behind this overhaul is a tax cut for the middle-class family. In fact, he has also devised a model middle-class family: it comprises a dad, a mom and two children surviving on the median national household income. Such a family can expect to benefit from a $1,182 windfall annually once the plan is approved.
Middle-class might be paying more taxes in 10 years
The bad news is that Mr. Ryan might turn out to be lying for the U.S. middle class. The model family described by AshLee Strong, his key spokesperson, would accrue tax benefits of nearly $1,200 for just a year. These benefits will diminish in the second year, and continue diminishing in the third, fourth, and fifth year. And by the time, a family enters into the 6th year, there will be no benefits. Further, according to Ryan’s tax plan, families will be paying a higher tax (as compared to what is paid under the existing law) in the 7th, 8th, 9th and 10th year. This tax increase besides being permanent will continue growing over a period of time owing to changes in the inflation ratio of the tax brackets.
Corporate tax payments in the US
As far as the story of the American corporate tax is concerned, the standard tax rate fixed at 35 % is among the highest found in all rich nations. However, there are numerous loopholes in corporate tax and hence firms only end up paying somewhere between 25 to 30 percent on an average.
Given this scenario, there is an urgent need for a corporate earnings tax reform. The removal of a few deductions will help in greatly reducing corporate tax rates and there won’t be any increase in the overall budget deficit. With this, there will be a more efficient operation of businesses in America since all types of business activities will be treated more equally.
The officials responsible for formulating the tax plan a year back were absolutely aware of all mathematical realities. This is the reason why they did not propose a 20% corporate tax rate and instead proposed the complete removal of corporate tax and substituting it with DBCF or destination-based cash flow tax.