Trump’s tax cuts are a political earthquake

The president has bought into a free-market policy for returning jobs and investment to America

We live in an age of internet “clickbait”, with all its exaggerations and over-use of capital letters. Online readers have grown used to boasts that: “YOU WON’T BELIEVE WHAT HAPPENED NEXT!!” Chances are we will – and we’ll be under-whelmed to boot. But if you had told me a mere six months ago that, by December, President Donald Trump would have passed tax reform of historic scale, which embraces a pro-growth, free-market agenda, I wouldn’t have believed it.

In the President’s speeches over the summer, he could barely string a coherent sentence together about the future of tax reform, let alone lay out the comprehensive and detailed agendas that have now passed through the House and the Senate. And after the politically disastrous attempt earlier this year to repeal Obamacare, it seemed that the Republican-held legislature was en route to nowhere.

But lo and behold – thanks to the efforts of his own party’s representatives and policymakers (and an early Christmas miracle that kept the President from lashing out at them on Twitter), Republicans have delivered a $1.3 trillion tax cut for American taxpayers, marking the biggest overhaul of the tax code for almost 30 years.

Individuals will see immediate benefits, making them better off. But the standout achievement of the bill is its complete overhaul of the corporate tax rate. Currently 35 per cent – one of the highest in the developed world – it has been slashed to 21 per cent, making the US significantly more competitive. Despite all the protectionist noise, Mr Trump has bought into a free-market policy prescription for returning jobs and investment to America. His embrace of competitive tax rates is likely to return billions, if not trillions, of dollars being held offshore to the US.

No, the bill is not perfect. It will contribute $1.5 trillion to the US debt over the next 10 years, making it a risky game for Republicans to play now they have styled themselves the party of financial responsibility. And it does not deliver enough for the middle class. While the average family is estimated to save $1,182 after the overhaul, that will not have a gamechanging effect on a family of four. So this bill should only be considered a starting point by America’s wealth liberating politicians. But it’s still a major achievement.

Democrats of course, are making the case that it benefits only the ultra-rich. And that argument is gaining some traction. Come 2018, however, when taxpayers see a higher take-home wage figure on their payslips, the Democrats may well lose their grip on the polls. Be in no doubt, this is the Republicans’ key to survival at next November’s midterms.

But it’s not just Democrats who should be nervous if the tax gamble pays off. Here in the UK, the Prime Minister and Chancellor need to answer for their own, lack-lustre approach to jump-starting Britain’s economy.

Contrast Mr Trump’s tax headlines today with those here in Britain. The US tax bill is an earthquake of policymaking, which will have a profound impact on America’s economic landscape. It looks to the future, and makes proactive changes to lift the economy and make citizens richer. In the UK, by contrast, the headline is that council tax is creeping up once again, set to cost the average taxpayer roughly £100 more a year.

This is symptomatic of a profoundly different attitude towards tax. Here, Mrs May acts as if tax hikes are an inevitable part of life – something she is resigned to, despite her ability to reverse them.

Even as the UK prepares to remove itself from the jurisdiction of the European Union, visions for the future are extremely bland; politicians are already assuring neighbouring countries that Britain won’t make its tax rates competitive, surrendering one of the major opportunities of Brexit before the UK has even left.

Yet if Mr Trump can get a comprehensive, competitive tax overhaul through Congress, there is no excuse for the grown-up politicians in Westminster not to follow suit. Britain’s Conservatives must show they believe in tax cuts, and what happens next. Because the positive economic answer, as always, is clear.