Responsible tax reform will be highly beneficial for the U.S. economy because:
- Economic growth will be speeded up by lowering tax rates on businesses, thereby encouraging more investment.
- National debt will shrink because faster growth will produce more tax revenue. But this only works if the revised tax plan is revenue neutral to begin with.
- three tax brackets, reduced from seven. Simplification like this is a good idea.
- double the standard deduction. This puts more money in the pockets of the average tax payer who does not itemize deductions and is therefore a good idea.
- repeal of the alternative minimum tax. This only affects wealthy people and should be retained, if necessary, to make sure that overall reform does not increase the deficit.
- lower capital gains tax. This will encourage more investment but should not be included unless the overall plan is revenue neutral.
- repeal of inheritance tax. This tax feature should be retained until our annual budget deficits are eliminated, i.e. until we achieve balanced budgets on an annual basis.
- preserving deductions for mortgage interest and charitable contributions. The mortgage interest deduction should be greatly reduced from its current level of $1 million per residence. Wealthy taxpayers don’t need that much help. Raising the standard deduction will already help middle income taxpayers.
- cutting the corporate tax rate. This is an excellent idea as long as its revenue loss is made up elsewhere. It will encourage multinational corporations to bring their overseas profits back home for reinvestment in the U.S.
Conclusion. The Trump tax plan has some good features as well as some poor ones. Reducing tax rates is a good idea. But adding to annual deficits is a very bad idea. With some effort it is possible to reduce tax rates in a revenue neutral way.