US tax reform: Australia needs to wake up fast, by Robert Gottliebsen.
In his US tax revolution President Donald Trump isolates four growth areas for the US — intellectual property, plant investment to take advantage of the new technologies, small business and the injection into the US of vast amounts of overseas funds held by American companies.
And there were two areas where Trump wants to curb growth. First, residential property via a limitation in the interest write-offs and a lowering of corporate gearing and, second, personal tax accounting by a dramatic simplification of the personal tax rules so people can again fill in their tax returns.
In the growth areas both the Australian government and opposition have policies that discourage the first three (plant investment, intellectual policy and small business) and we are in danger of being a victim of the fourth (the transfer of funds to the US).
We will have to wake up fast but it will not be easy because what makes President Trump’s US tax revolution so powerful is that it has been crafted not by public servants but by people who actually understand the shape of the future business community. …
When it comes to the overseas US funds no one knows whether the American corporations will bring the money home but if they do, watch global interest rates rise. US companies have $US2.6 trillion in overseas accounts. …
Already the US 10-year bond rate is rising and it’s going to rise a lot further if the US tax package works and US rate rises affect Australia, because our banks have borrowed heavily overseas.
Finally the US tax package hits Obamacare hard.
Currently Americans must purchase health insurance, or they must pay a penalty. The US package eliminates the penalty, which practically means the individual mandate will be eliminated. Currently some individuals enjoy a government subsidy to help fund insurance premiums. Americans leaving the health scheme will therefore no longer receive a subsidy — a saving of $300 billion over 10 years. The people who leave will tend to be younger and healthier. This will push up the costs for those that remain. It effectively abolishes Obamacare via the back door.