Donald Trump’s winning the United States creates the possibility of important tax reforms after a long time. There are now opportunities for Congress to slash taxes without stamping a gaping hole un Federal budget deficit.
Congress choke point
Although President-Elect Trump said that he will overhaul the tax system during his campaign trail, it is to be remembered that any re-write of the tax code must be ratified by the Congress. These could be a problem as Mitch McConnell, the Majority Leader of the Senate, has criticized Trump’s plans and made his revenue neutral position clear.
A feasible way to cut taxes, and yet not make a large hole in Federal budget is to tax foreign citizens. To do this, Congress can proceed with a few proposals. The first of them is that it could shut the loophole in Foreign Savings Tax. This anomaly began in 1984 when the loophole on foreign savings tax was passed by the Congress. This led to the elimination of the 30 percent withholding tax based on the interest which foreigners earned when they saved money in United States. This removal of withholding tax marked the end of a process which prevented the US from taxing the interest which foreigners earned in return for other nations not taxing income from interest earned by well off Americans living outside the country. Congress can now eliminate this loophole by deleting sections 871(h,i,k) and 881 (c,d,e) of the IRS code. Trump can then order his Treasury Secretary to freshly negotiate all the tax treaties. The new treaty should contain tenets like complete disclosure of all foreigner earned interests and the final taxation of the interest earned at rate greater or equal as paid by Americans. This will help the United States economy to grow.
Another method to make the US economy shine is to tax the foreign dollar reserves. The American system of income tax offers a unique tax break which exempts the foreign governments from giving any US taxes on interest and dividends along with any other income. This income is earned from investments made in the US. It is to be noted that other governments also have identical policy. Another policy change the US must do is to integrate Personal and Corporate Income Taxes. The corporations must be taxed the same as proprietorships and partnerships. This new system will be progressive as personal income tax.