For many people in the UK, what President Trump does with US taxes is of very little interest, but many of my clients care a great deal about the US tax system. In addition to having studied US taxes on and off for several years, I have taken a keen interest in what the Trump Administration was planning to do with the US tax system.
Ever since I began studying US taxes about five years ago, it was clear that there were a number of fundamental challenges around the US system – in the main, the fact that the US corporate tax system was at odds with the way in which the rest of the developed world taxed corporate profits. The mechanism incentivised US businesses not to repatriate funds to the US but instead, hold them in the Caribbean or in Ireland or some other suitably tax-friendly jurisdiction. The US tax system is also exceedingly complex – even more so than the UK system.
Something has needed to change for a long time, but in order for that to happen, the President of the day needed the Senate and the House of Representatives onside in able to pass a Bill.
We can debate the Trump presidency on many levels, but the proposals on tax are interesting because he may just be able to get them through – but it’s not certain.
At the moment we have very little to go on. Yesterday, two White House officials ran a press conference and handed out a sheet of paper with some notes on (see link below) – there has been no official press release, as far as I know. There is a promise of more consultation and details to come, but at the moment all we have to go on is the press conference and the one side of A4.
The key messages seem to be:
•federal corporate income tax down from 35% to 15%
•a move from an all-inclusive tax system for corporates to a territorial basis (like the UK)
•a one-off tax on repatriation of funds prior to the changes
•reducing the number of personal income tax brackets and the rates thereon
•repeal of Obamacare
•repeal death tax (IHT)
Some of these changes would be a major step change in the way the US tax system works but it is perhaps change that is required. The other important question is whether the US can afford it.
As this story moves on we will come back to it to take a look at what it means in more detail.