America leads the way on tax cuts

This weekend, Donald Trump will have been in the White House for 100 days. It has been something of a roller-coaster ride for the new president over plans to curb immigration, or reverse his predecessor’s healthcare policies. But he cannot be faulted for seeking to put into practice the pledges he made on the campaign trail and which got him elected.

One of the most eye-catching was a promise to cut taxes to historically low levels and yesterday he set out his plans to do just that. Among the measures is a dramatic reduction in corporation tax from 40 per cent to 15 per cent, combined with incentives for US firms to return capital assets held offshore to avoid the current rates. Given the impact this would have on US Treasury revenues, some economists suspect this is an opening gambit by Mr Trump in what will be difficult negotiations with Congress – even a Republicanled one – to get his policy through.

However, as a deal maker, the president will eventually get something approximating to what he has been after. This is as much about direction of travel as anything else. Even if Mr Trump gets half of what he is trying to do through Congress, he will have engineered a massive tax boost for US businesses and earners.

There are lessons here for Britain as we prepare to go to the polls. While the Americans are moving in the direction of lower taxes, there is a risk here that we may go the other way. The Conservatives have declined to repeat the promise of no tax rises made in their 2015 manifesto, and Philip Hammond, the Chancellor – who came unstuck when he tried to renege on that pledge – evidently does not want his hands tied by election guarantees. But that suggests the Tories may be contemplating putting up taxes, otherwise why not reaffirm the pledge?

Mr Trump has moved the debate in America on to the territory of tax cuts to boost the economy. Here, receipts from corporation tax have risen since it was reduced from 28 per cent to 20 per cent, helping to cut public borrowing. Yet all the opposition parties believe in taxing people and business more: indeed, Labour’s entire strategy is built around increasing corporation tax. This could be the first general election campaign for many years where tax cuts are not on offer from one of the major parties.