President Trump announced Wednesday plans to carry out a tax reform calling for big corporate rate cuts, a simpler tax code and big increases in standard deductions.
Trump wants to reduce the tax rate for all businesses, including mom-and-pop shops to 15 percent, which Treasury Secretary Steve Mnuchin called the "biggest tax cut" in U.S. history.
The current corporate tax rate is 35 percent.
The tax reform is only a rough draft and is brief, but does note a plan to "double" the standard tax deductions as well as reducing the number of tax brackets for individual filers from seven to three, with levels of 10 percent, 25 percent and 35 percent.
The four Republican leaders who met at the White House Tuesday night, Paul Ryan, along with Ways and Means Chairman Kevin Brady, Senate Minority Leader Mitch McConnell and Finance Chairman Orrin Hatch, released a joint statement addressing the tax reform plan.
“Lower rates for individuals and families will allow them to keep more of their hard-earned money and empower them to invest more in their future,” they said. “Getting tax rates down for American companies, big and small, will create new jobs and make the United States a more inviting place to do business.”
The idea behind tax cuts is simple: cutting taxes gives people more money to spend, boosting economic growth.
But do tax cuts really spark economic growth?
Unfortunately, this very simple concept is usually oversimplified.
The question doesn't have a yes or no answer because it depends on a variety of details.
Cause and Effect
Tax breaks are not an isolated factor relating to economic growth.
There are times in U.S. history where the simple logic behind tax cuts panned out positively. For example, Ronald Reagan's tax breaks in the 1980s spurred an economy growth spurt.
But there is no evidence showing the results of tax breaks are consistent, in fact, recent American history shows tax breaks don't always fit the economic growth agenda.
George W. Bush 2001 and 2003 tax breaks didn't result in an economy boost but Bill Clinton's 1993 tax increases created a bigger boom than seen during the Reagan era.
William G. Gale, an economist at Brookings Institution and co-director at the Tax Policy Center counters the general idea that tax breaks boost the economy.
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