Taxation is the main source of fiscal revenue, which serves as the foundation for a country's governance and the provision of public welfare. Therefore, the tax burden of a country is usually relatively stable. Perhaps for this reason, coupled with the country's governance structure of "separation of powers", many people believe that the possibility of the "Trump Tax Reform" being implemented is extremely low. Unfortunately, with the passage of the respective versions of the tax cut bills by the House of Representatives and the Senate, it marks that the most arduous legislative path of the "Trump Tax Reform" has been completed, and only a short procedural path between the House and the Senate remains. The "Trump Tax Reform" will most likely be enacted into law before New Year's Day 2018.

【Four Major Contents of the Tax Reform】

1. Simplify and reduce personal income tax: the number of personal income tax brackets will be reduced from 7 to 3, the top tax rate will be lowered from 39.6% to 33%, and the personal and family exemption thresholds will be raised from the original $6,300 and $12,600 to $12,000 and $24,000 respectively;

2. Reduce the corporate income tax rate from 35% to 20%, and allow the full deduction of fixed asset investments as depreciation in the current year;

3. Provide substantial preferential treatment for the repatriation of corporate overseas profits;

4. Abolish the estate tax.

【Three Major Implications of the Tax Reform】

1. Reduce the burden on enterprises, stimulate investment, and drive economic growth;

2. Simplify the tax system, reduce the social costs brought by taxation, and implement its political concept of deregulation;

3. Implement "America First" and enhance the global competitiveness of the US economy.

【The Tax Reform is the Concrete Implementation of Trump's Slogan "Make America Great Again"】

As a businessman, Trump knows best what taxation means for an enterprise to improve its profitability.

Not to mention a 10-percentage-point reduction, even a reduction of just two or three percentage points can turn losses into profits for many companies. If a company incurs losses, it will inevitably consider layoffs, salary cuts for employees, and scaling back investment in new production lines. After tax cuts, the retained profits of companies will undoubtedly increase. Companies will consider increasing investment, raising employees' salaries, and improving the operating environment, which can not only prevent the loss of existing jobs but also create new employment opportunities.

Over the decades of advancing globalization, US capital has flowed out severely. Technologies, industries, and jobs have also moved away from the US. Similarly, to avoid taxes, corporate profits will not flow back to the US. If the US cuts taxes, a 15% tax rate is close to that of some tax havens. A large number of companies will return to the US, bringing capital and commercial systems. Coupled with the scale effect brought by the huge size of the US economy, a virtuous circle can be formed, unleashing a multiplier effect.

To what extent can US tax cuts boost the US economy? The Tax Foundation estimates that under the best scenario, the tax reform will increase the US GDP by 6.9 to 8.2 percentage points overall and create 2 million new jobs. What does this mean? During the once-in-a-century financial crisis, the number of unemployed people in the US for the entire year of 2008 was 2.6 million. According to data from January this year, the total number of people receiving unemployment benefits in the US is 2.07 million. If 2 million new jobs can be created, it can basically eliminate all unemployed people in the US.

Compared with other developed countries, the US corporate income tax rate is indeed the highest. Under the high tax rate, it will produce a crowding-out effect on enterprises, making them seek tax havens to ease their tax pressure.

It is estimated that US corporations hold approximately $2.6 trillion in offshore retained profits. If the tax rate drops below 20%, the US corporate tax rate will be lower than that of developed countries such as Germany, France, Italy, the UK, Japan, and Canada. Undoubtedly, enterprises will go where the tax burden is lower.

Some people believe that the tax reform will only reduce the burden on the wealthy and large corporations, have little effect on people in the middle and lower classes, and instead widen the wealth gap. It is possible that Trump has also learned from China's approach: letting some people get rich first, and then the rich drive the poor to prosperity. Otherwise, if the wealthy are "taxed to death" and capital flows overseas, and they do not come to invest in the US, what will the poor rely on for employment? Ultimately, without a job, all talk about changes in personal income is meaningless.

After all, tax cuts are not the goal, but just a means. The goal is to boost US economic growth and invigorate the US economy.

Main sources of the above content: CICC Network, Sina Comprehensive Network, Cherry Big House (ytdfz8)