The Impact of “trump Tax Reform” on China

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- There are lobbyists representing with strong bargaining power representing each deduction;

Eliminating tax deductions is easy to talk about but difficult to accomplish, for behind each of the deduction stands one or more related interest group, as well as at least one congress man as representative. The Tax Reform blueprint would cancel out almost every personal deductions and credits, and replace them with a significantly increased standard deduction. When the standard deduction is higher the itemized deduction, no rationalized individual would choose itemized deduction over the standard one, thus seriously effects the benefits of those major interest group that feed of them. For example, one of the itemized deduction is the charitable donations, and reducing the tax benefits for making donations would irritate the religious group, and reducing the mortgage interest would also be vigorously opposed by homebuilders and realtors (and related associations). From another angle, the policy would also unite lawmakers from different regions, regardless of party. For those states with higher average income or property tax such as California, New York and New Jersey, this kind of federal level tax reform would result in smaller benefits.

- The Border Adjustment notion received a cold reception in the senate;

The House Ways and Means Committee[4] may have a hearing next week on “Border Adjustment”, which aims to make up for the foreseeable revenue cut resulted from the new tax policy. “Boarder Adjustment” tries to improve the ability of American companies to compete globally by effectively adding a tax to imported goods. The notion of border adjustment has received a cold reception in the Senate, and Trump has given conflicting comments about it. Without it, however, making a dramatic cut in corporate rates becomes much more difficult.

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