Trump's tax cut bill more of a political game

The year 2017 is coming to an end amid a couple of economic shocks. With the Conference Committee of the US Congress passing the bill for the Tax Cut and Jobs Act of 2017 on Dec 15, worries are mounting across the world on its possible ramifications, including global tax competition, capital flows into the United States, possible shift of manufacturing investment back to the US, and the rise of the dollar against other currencies, especially the renminbi.

However, looking at the serious economic implications and constraints, the bill doesn't appear as significant as described by US President Donald Trump and the Treasury Department.

First, the effect of corporate tax cut will be limited. The bill will reduce the corporate tax from a maximum of 35 percent to 21 percent. But the current actual corporate tax level is already very close to 21 percent, instead of the nominal 35 percent. Due to various tax incentives, rebates, credit and rational evasions, the actual total corporate tax levied in 2014 was $505.3 billion on a total pretax corporate income of $2,140.6 billion, or an average corporate tax rate of 23.6 percent. The rate increased to 24.0 percent in 2015 and then dropped to 22.7 percent last year.