President Donald Trump released on Wednesday broad proposals for a tax reform plan that would slash taxes on businesses, double the standard income tax deduction for individuals and joint filers, and encourage companies to bring back money from overseas by instituting a lower repatriation tax. For the promotional products industry, the plan was also especially relevant for what it didn’t contain: A border adjustment tax, which industry suppliers said would have caused rampant escalation in costs for imported products.
The centerpiece of Wednesday’s tax reform announcement was Trump’s push to reduce the top tax rate for businesses – including corporations, small businesses and large owner-operated conglomerates – to 15%. Currently, the 35% U.S. corporate tax rate is highest among the 35 OECD nations. Should Trump’s reduction ultimately be enacted, the United States would have one of the top five lowest corporate tax rates among developed countries.
“The proposed tax deductions will definitely spur the economy,” Howard Schwartz, CEO/founder of distributorship HDS (asi/216807), told Counselor. “Jobs will be added, sales will grow and marketing dollars will be spent. This is a big win for our industry.”
Further, said Schwartz, the tax reform could help distributors and suppliers bolster internal operations, too. “I think these proposed changes, if accepted, will have a very positive impact on the promotional products industry as a whole,” he said. “Company owners who are not greedy will be able to re-invest in their businesses to offer additional resources and services, hire more staff and continue to grow.”
Beyond the business tax reduction, Trump’s plan would eliminate a tax on assets being transferred via a will after someone dies, abolish the 3.8% tax on net investment income that was previously placed above a particular threshold, and get rid of most itemized deductions except for mortgage interest and charitable contributions. The president would also allow individuals to deduct their first $12,700 in income from their taxes, while joint-filing couples could deduct $25,400. That’s up from the current $6,350 for individuals and $12,700 for joint filers. Allowing people to keep more of their money, proponents say, could fuel consumer spending, which accounts for about 70% of GDP.
Meanwhile, the border adjustment tax, which would have raised taxes on imported goods, is not in Trump’s plans. While championed by House Speaker Paul Ryan and other Republicans, Treasury Secretary Steven Mnuchin said the administration believes the tax does not “work in its current form.”
In February, the promotional product industry’s two largest suppliers by revenue issued a joint statement saying that the border adjustment tax represented possibly “the greatest threat to our industry in a generation.” Sanmar (asi/84863) and alphabroder (asi/34063) said the tax would have a devastating impact on the promo business. “The reality is that this tax will disrupt global business, cause job losses at American companies relying on imports and lead to significant increases in prices on a wide variety of consumer goods, including the products your business relies on,” read a letter the suppliers sent to clients.
While Trump released his tax reform platform this week, the proposals are just the beginning of what will likely be a lengthy negotiation with both Republicans and Democrats in Congress.
Fiscal conservatives, for instance, could take issue with the fact that Trump is proposing massive federal revenue cuts without providing a plan to keep the deficit from ballooning. Mnuchin has said tax changes could lead to economic growth that would cover the anticipated drop, but critics call that notion a fairy tale. “America is a great nation,” Representative Ted Lieu, Democrat of California, told The New York Times, “but we haven’t yet discovered magic.” He further described Trump’s tax proposal as “mathematically impossible.”
Other Democrats have already raised concerns that proposed business tax reforms could allow wealthy people to structure their personal income as business income, thereby reducing their tax rate from 39.6% to 15%. “We don’t need a tax plan that allows the very rich to use pass-throughs to reduce their rates to 15% while average Americans are paying much more,” Democratic Senator Chuck Schumer of New York told The New York Times. “That’s not tax reform. That’s just a tax giveaway to the very, very wealthy that will explode the deficit.”