In one of the biggest tax cuts in American history, President Donald Trump has proposed slashing the US tax rate on corporate and pass-through business profits to 15 per cent from 35 per cent or more, while also offering tax cuts to average Americans in a rough outline of his tax policy goals.
According to a Reuters report, a one-page summary of his proposals, released at a White House briefing, said Trump also wants to reduce the number of tax brackets to 3 from 7, double the standard deduction that Americans can claim on their tax returns and repeal the estate tax and alternative minimum tax.
“The President has focused on three things since his campaign: job creation, economic growth, and helping low and middle-income families who have been left behind by this economy. He understands that there are a lot of people in this country that feel like they work hard and still can’t get ahead. They are sick of turning their paychecks over to Washington and having no idea how their tax dollars are spent. They are frustrated by a tax code that is so complicated that they can’t even do their own taxes. That’s why tax reform is such a big priority for this President,” said Gary Cohn, chief economic advisor to President Donald J. Trump and Director of the National Economic Council, in a blog post.
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Experts feel that like Americans, the Indian people – mostly the middle class — too are burdened with high taxes, and there is an urgent need for a major tax reform. Here’s what India can learn from the US and what the FM can do to lower the tax burden on individuals:
1. The Trump Government has proposed to cut taxes and simplify the tax code by reducing the tax brackets from 7 currently to only 3: 10 per cent, 25 per cent, and 35 per cent. This proposal is aimed at easing the tax burden on most Americans.
In India too tax slab rates need to be revised upwards. For instance, before the Budget 2017, tax experts were expecting that the FM would increase the current income tax exemption limit from Rs 2.5 lakh to Rs 4 lakh, while the subsequent slabs of 10 per cent, 20 per cent and 30 per cent should have been made applicable to annual income range of above Rs 3 lakh and up to Rs 10 lakh, above Rs 10 lakh and up to Rs 20 lakh and above Rs 20 lakh, respectively. If implemented, this would have helped alleviate the common man’s sufferings to some extent. However, apart from halving the tax rate for individual tax payers who fall in the Rs 2.5 – Rs 5 lakh slab, the FM didn’t do anything else in the Budget for the people in the higher tax slabs.
2. The US President is also going to double the standard deduction so that a married couple won’t pay any taxes on the first $24,000 of income they earn. “In essence, we are creating a 0 percent tax rate for the first $24,000 that a couple earns,” says Cohn, adding that the larger standard deduction also leads to simplification because far fewer taxpayers will need to itemize, which means their tax form can go back to that one simple page.
This is a major tax reform and experts feel that India should do something similar. Tax experts say that at present there are only a few tax concessions available to individual tax payers and most of the current set of tax benefits like conveyance allowance, medical reimbursement etc don’t offer any real economic benefit to the individual tax payer. Therefore, either these tax benefits should be substantially increased or they should be done away with and instead a special tax benefit like the erstwhile standard deduction be introduced.
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3. The US government is going to eliminate most of the tax breaks that mainly benefit high-income individuals. “Home ownership, charitable giving, and retirement savings will be protected – but other tax benefits will be eliminated,” says Cohn.
If possible, we should also try to do something similar which will benefit the economy and the poor people in the long run.