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The Impact of “trump Tax Reform” on China

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The Impact of “Trump Tax Reform” on China

Executive Summary

Trump has been struggling to fulfill the promises and political view ever since he swore in the oval office. Although the American Health Care Act, aka the Trump Care, did not pass the vote, Trump continues to make every effort in order to transform his words into actions. Except his aggressive plan on immigration, one of the most controversial new policy would be the Trump Tax Reform.

Nevertheless, whether this proposed yet under negotiation new tax policy will pass the White House vote and be written down as part of the law is still uncertain. Considering the fact that there is a 6 week lag between the reveal of the policy and the actual announcement of it, we have every reason to doubt that there is definitely a serious debate inside the Trump team. Besides, according to the interview of the Treasury Secretary Steven Mnuchin by the Financial Times[1], certain members of the Congress reveal that the final action may not happen until the end of the year, if it happens at all.  

In compliance with the spirit of the class of ACT404 Taxation, we choose this ongoing trendy topic and did a comprehensive research concerning its potential impact on both US and China. The report mainly concerns three parts: a) the comparison between this potential policy and the current tax policy of China (as well as the seemingly response and actions from the Chinese officials); b) the potential impact of this policy on the US; c) the potential impact of this policy on China. We believe this project is going to help us better understand the class topic of Taxation, as well as the current world business environment.

Macro-Environment Analysis

The US has a lot on its plate since day one, and when the Republican finally had its president after 8 years, the problems only got worse. The static yet unsatisfactory economy, the rising unemployment rate resulted from the US corporations outflow, and the shrinkage of the middle class, are the major social issues of the US in the recent years. Under the circumstance, Trump administration campaigned wisely. He made millions of people vote for him with one simple slogan “Make America Great Again”, and it works. Of course, around the skeletal slogan attached a lot of promises, and among those promises, one of the most important is to cut taxes.

Tax cut is just one of the approach from Trump administration aiming to eliminate the social issues that has been discusses above. More to the point, whether or not the tax reform would achieve those goals and fulfill the promises made is what the world really cares about. The Trump Tax Reform is still a piece of proposal, which has not pass the Congress`s vote, up to the compilation of this report. Assuming that the bill really pass and become part of the US legal system, we analyzed some of the potential influences and results concerning corporations, capitals, immigrants and governmental income.

What if the proposal failed then? The outcome is indeed debatable. So coming from the opposition side, which are those congress men who do not believe in the tax reform, we listed 3 arguments[2] and brief analysis is attached.

Conclusion

There are three reasons coming from the public that argue Trump Tax Reform would not take into effect:

  1. The goal of the Proposal is unclear;

Considering the fact that this proposal is literally only one page, whether it is clear is highly doubtable. More to the point, whether or not this new policy would take into effect and increase the government revenue is what really demands focus. “Tax cuts don’t pay for things, tax increases pay for things” according to the president of the Committee for a Responsible Federal Budget Maya MacGuineas[3], before a bill can be written, the Trump administration definitely needs to clarify whether the end results would be increasing the already-serious government deficit, keeping at the same level, or decreasing it. In terms of the stance coming from the side of the policy maker, of course, the outcome would be positive, with the main argument of “Decreased tax rates would result in increased tax basis, thus a higher total tax bracket.” Also, the Trump Administration even believe that this new policy would not only benefits the corporation and individual involved, but also be able to fund a 1 trillion program on infrastructure. Nevertheless, one cannot assume that the assumed change would definitely happen just as they believed.

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