Tax reform of Reagan and Trump: a comparative study and implications for China

YANG Zhiyong1

(1.Researcher, at National Academy of Economic Strategy, Chinese Academy of Social Sciences)

【Abstract】US President Donald Trump signed into law the Tax Cuts and Jobs Act (TCJA) on Decembe22, 2017. The reform has been regarded as a tax reduction reform. What are the difference between Trump’s tax reform and Reagan’s tax reduction reform in the 1980s? The Reagan reform helped meet the target of economic growth, full employment and low inflation and the practices of broadening tax base, cutting tax rates and simplifying tax systems had guided the global tax reform at that time. Reagan’s tax reform is more oriented to domestic considerations. The Trump administration claimed that the reform targeted the domestic economy, but th slogan of “America First” obviously refers to international competition. The Trump administration’s overall tax reduction is steep and must not be neglected. Both the Reagan administration and the Trump administration pay special attention to coordination of reforms China should comprehensively deepen its reforms and properly implement tax reform and reduce tax rates across-the-board to promote the formation of a new international tax order that benefits China.

【Keywords】 Tax Reform; Reagan’s tax reform; Trump’s tax reform; China’s tax system reform; Comparison of tax system;

【DOI】

【Funds】 Phased research results of the Class A project of the Philosophy and Social Science Innovation Project of the Chinese Academy of Social Sciences “Accelerating the Establishment of a Modern Fiscal System” (2018CJY01-A002)

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(Translated by SONG Xiaokun)

    Footnote

    [1]. [1] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 10, 1982. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=42121/[2018-04-19]. [^Back]

    [2]. 1] The deficit rate of less than 3% of now seems to be not a serious problem, but at that time, the understanding of fiscal balance was more conservative. [^Back]

    [3]. [2] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 2, 1984. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=39222/[2018-04-19]. [^Back]

    [4]. [3] Whether indexing should be implemented is controversial. Opponents believe that the goal of indexation can be solved through tax cuts. Tax cuts can also meet other tasks and deal with the impact of inflation. Some people even believe that without indexation, we can better exert the tightening effect of fiscal policy and prevent excessive economic prosperity. See Rosen, H. S. & Gayer, T. Public Finance. Guo, Q. (trans.) Beijing: China Renmin University Press, 330 (2015). [^Back]

    [5]. [1] Staff of the Joint Committee on Taxation, General Explanation of the Economic Recovery Tax Act of 1981, 1981. [^Back]

    [6]. [2] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 2, 1984. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=39222/[2018-04-19]. [^Back]

    [7]. [3] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 2, 1983. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=40650/[2018-04-19]. [^Back]

    [8]. [4] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 2, 1984. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=39222/[2018-04-19]. [^Back]

    [9]. [5] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 6, 1986. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=36779./[2018-04-19]. [^Back]

    [10]. [1] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 5, 1985. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=38002/[2018-04-19]. [^Back]

    [11]. [2] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 6, 1986. [^Back]

    [12]. [3] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 5, 1985. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=38002/[2018-04-19]. [^Back]

    [13]. [4] See the 1985 US Economic Report of the President (Transmitted to the Congress, February 1985). [^Back]

    [14]. [1] The same rate for capital gains and ordinary incomes was quickly cancelled. [^Back]

    [15]. [2] Ma, J. Financial Minds (财经智库), (1): 22–50. [^Back]

    [16]. [3] Uneven annual incomes result in high and abnormal tax burdens, and the average incomes can solve the problem of excessive differences in annual tax burden. [^Back]

    [17]. [1] Regarding Reagan’s tax reform, refer to Sun, R. Contemporary American Tax Theory and Practice (当代美国税收理论与实践). Beijing: China Financial and Economic Publishing House, (1989). [^Back]

    [18]. [2] Ronald Reagan, “Letter to the Speaker of the House of Representatives and the President of the Senate Transmitting the Annual Economic Report of the President”, January 10, 1989. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=35349/[2018-04-19]. [^Back]

    [19]. [1] Ronald Reagan, “Message to the Congress Transmitting the Annual Economic Report of the President”, February 6, 1986. Online by Gerhard Peters and John T. Woolley, The American Presidency Project, http://www.presidency.ucsb.edu/ws/?pid=36779/[2018-04-19]. [^Back]

    [20]. [2] As for more detailed introduction to Trump’s tax reform, see Hu, Y. Tax Research (税务研究), (1): 13-17 (2018). Huang, L. Tax Research (税务研究), (1): 18–24 (2018). [^Back]

    [21]. [1] In 1969, The United States Treasury secretary has released a list of 155 people who earned more than USD 200,000 without paying federal income taxes for several years. Implemented in 1969, the AMT, which has been revised several times, was intended to make those rich people who receive tax benefits pay taxes. In the implementation of it, this tax was later paid by more than 4 million households each year, many of whom are not rich. In any case, as long as the taxable amount of the general income tax is lower than the alternative minimum tax, the number of taxpayers with the alternative minimum tax will increase. In 2001, the general income tax for most people was cut, but there was no substantial change in the alternative minimum tax, resulting in more families paying alternative minimum taxes. When income reaches a certain level, it is impossible to know whether or not you need to pay an alternative minimum tax without calculation, thereby increasing the burden of tax compliance. See Rosen, H. S. & Gayer, T. Public Finance. Guo, Q. (trans.) Beijing: China Renmin University Press, 331 (2015). [^Back]

    [22]. [1] Yu Yongding detailed the calculation principles of global intangible assets income tax, overseas intangible income tax and base erosion tax. See Yu, Y. International Economic Review (国际经济评论), (3): 9–25 (2018). [^Back]

    [23]. [2] Scott Greenberg, “Tax Reform Isn’t Done”, March 8, 2018, https://taxfoundation.org/tax-reform-isnt-done/[2018-04-19]. [^Back]

    [24]. [1] Estimated Budget Effects of the Conference Agreement for H.R.1, The “Tax Cuts And Jobs Act” Submitted On: December 18, 2017. [^Back]

    [25]. [2] Huang, L. Tax Research (税务研究), (1): 18–24 (2018). [^Back]

    [26]. [3] The corporate tax rate in the United States can be considered almost as a proportional tax rate. See Rosen, H. S. & Gayer, T. Public Finance. Guo, Q. (trans.) Beijing: China Renmin University Press, 357 (2015). [^Back]

    [27]. [1] It is a preferential tax arrangement for small businesses (penetrating entities) such as limited liability companies, partnerships, and S companies. [^Back]

    [28]. [2] Kyle Pomerleau, Erica York, “Modeling the Impact of President Trump’s Proposed Tariffs”, April 12, 2018, https://taxfoundation.org/modeling-impact-president-trumps-proposed-tariffs/[2018-04-19]. [^Back]

    [29]. [1] Stephen Roach: “The US tax reform is not far away”, China Economic Report (中国经济报告), (1): 108 (2018). [^Back]

    [30]. [1] Yang, Z. 大国轻税. Guangdong Economic Press, (2018). [^Back]

This Article

ISSN:1007-0974

CN: 11-3799/F

Vol , No. 03, Pages 47-63+5

May 2018

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Article Outline

Abstract

  • 1 Reagan’s tax reform
  • 2 Trump’s tax reform
  • 3 Comparative analysis of Reagan’ tax reform and Trump’ tax reform
  • 4 Conclusion and enlightenment to China
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