US Tax Reform Plan: the biggest Tax Cut of all time
The long-awaited tax reform was quietly approved by the House and then signed by the US President on 22 December 2017.
A nice end-of-year gift for many SMEs and many investors. A gift that has not been seen since Reagan’s presidency, in terms of tax reduction.
It is, in fact, the most drastic change to US tax code of the last 30 years!
Corporations and upper classes will obviously benefit the most from the reform, but the middle class (although to a lesser extent) will obtain significant advantages from this action too.
But what is this exceptional reform all about?
Here’s a list of the main points:
The corporate tax rate has been permanently cut from 35% to 21% for companies of all sizes and industry fields.
Top individual tax rate would drop to 37% from the current 39.6%
“Bonus depreciation” is increased to 100% (for machinery and equipment purchases it applies immediately and until 2022)
Multinationals and giant corporations (e.g. Apple and Microsoft) will be able to bring their capitals back to the US with an 8% one-time tax on their earnings (15.5% in case of offshore cash) instead of the average 35% under current federal law (which will be terminated)
Meaningful advantages in the real estate industry
Business premises income deductibility
Tax reduction on individuals until 2025
Estate tax exemption (which lets heirs save on millions of dollars)
Student loan interest deduction
End of tax penalties for individuals who do not obtain health insurance coverage
What will be the medium to long-term results desired by the reform?
It is estimated that the federal budget will decrease of 1.5 billion $ over the next 10 years.
Since such great amount of money will remain in the business circle, US economic growth will literally boost and experience the following effects:
GDP growth up to 4%
The US stock-market could head a lot higher and grow dramatically
A medium-to-long term increase on banks and corporate earnings
Increase in jobs
The repatriation of foreign earnings and companies who had previously relocated (causing some understandable fears in Europe and China about possible economic losses in the coming years).
It is all too good to be true, someone would say. And, indeed, this has actually been said.
In such a scenario, interest rates are also expected to rise and, according to James Bullard, President of the St. Louis Federal Reserve (Fed), the fact that an increase in the cost of money could favor recession, is a tangible risk for 2018.
We will surely monitor the situation in the future months and assess the impact of the tax reform on both the US economy and international markets.
If you, as well, have decided to invest in the US because you are convinced that:
This Tax Reform can be an excellent launch pad for your business
It is a golden opportunity to internationalize your business
Then contact our firm for all the administrative, fiscal and legal support you might need!