Tax cutting has been synonymous to Republicans as Ronald Reagan did it and so did George W. Bush. Thus, it is only natural for US citizens to expect it from Donald Trump and he has also been promising to go for it. While tax cuts are very much on the table, it is the tax reforms that people are not sure of. This time around, they are looking for tax reforms rather than tax cuts.
A few decades have passed since any significant tax reform has taken place and the industry is reeling under the heavy burdens of the U.S. tax code. Thus, the corporate America sees a great genuine opportunity for the first time since President Reagan’s era to enact a comprehensive tax reform under Trump’s administration. They are keen for it as the current tax code poses serious disadvantages for them and makes them laggards in the international competition arena.
If we closely see the difference between the tax cuts and tax reforms, you will find that cutting taxes is easy as everyone is a beneficiary and hence there is no resistance from any section. Tax reforms, on the other hand, means lowering the tax rates, but compensating it with getting rid of some tax breaks. It simply translates to the fact that some people wouldn’t be benefitted and hence they will resist and put up a fight against these reforms. The Republicans want reforms as this will mean that taxes can be reduced more and for a longer duration.
The important thing to see is that Republicans can easily pass a tax cut as they simply need a Senate majority to pass it, which they have. But, will this cut result in deficit after 10 years as it did in earlier times. To contain this problem, Bush administration actually went ahead with tax cuts with an expiry clause. Thus, if Trump administration wants to cut rates it should find means of compensating it as well from some other route. If they don’t succeed in planning something on these lines, then tax cuts under the new administration will be nothing more than that happened under Bush, but with a more regressive approach.