Trump issues 1-page outline of his tax plan
It calls for lowering rates, getting rid of some breaks
WASHINGTON — President Donald Trump on Wednesday proposed an overhaul of the tax code, calling for sharply lower rates for individuals and businesses and the elimination of key tax breaks.
The proposal is a onepage outline — details are left incomplete — but it presents an initial offer to begin negotiations with lawmakers. White House officials consider reworking the tax code to be one of their top priorities to boost economic growth.
“We have a once-in-a-generation opportunity to do something big and important on taxes,” Gary Cohn, director of the White House National Economic Council, said Wednesday.
The central feature of the White House’s plan would be a big reduction in tax rates for virtually all Americans and businesses.
Trump’s proposal would lower the corporate tax rate from 35 percent to 15 percent. It also would eliminate the seven existing income tax brackets and replace them with three brackets, containing new rates of 10 percent, 25 percent and 35 percent. White House officials haven’t specified which income levels would hit the higher tax brackets; those details are part of ongoing discussions with lawmakers.
More lower-income Americans would pay no tax at all, and there would be relief — still undefined — for families with child care expenses.
The plan also seeks to roughly double the standard deduction that Americans can use to reduce their taxable income. The deduction for married couples would change from $12,600 to $24,000. This would encourage people to use the standard deduction instead of itemizing their tax returns, simplifying the process and potentially saving taxpayers thousands of dollars each year.
The White House plan would eliminate the alternative-minimum tax and the estate tax, provisions that raise billions of dollars each year but have long been the target of Republicans seeking to rip up the tax code.
On the alternative-minimum tax, Cohn said the administration doesn’t “think that people should have to do their taxes twice,” adding that the estate tax unfairly prevents farmers and others from passing along their businesses to the next generation.
Many budget experts believe that the White House’s tax-cutting plan would reduce federal revenue by so much that it would increase the debt by trillions of dollars in the next decade, leading to rising interest costs and slowing the economy.
To offset some of the cost of the lower rates, Trump administration officials proposed to eliminate virtually all of the tax deductions that Americans claim, provisions that they argue primarily benefit wealthier Americans. Cohn said the administration would preserve tax breaks that incentivize homeownership, retirement savings and charitable giving. But most others would be jettisoned.
This includes the tax deduction that people can claim for the state and local taxes that they pay each calendar year. Those taxes can be particularly high in states with higher income taxes, such as California and New York.
“It’s not the federal government’s job to be subsidizing the states,” Treasury Secretary Steve Mnuchin told reporters at the briefing with Cohn. “It’s the state’s independent decision as to do what they want to tax.”
Some of the White House’s tax changes would benefit the wealthy, such as the elimination of the estate tax, while other changes would benefit the middle class and lower-income Americans.
Trump administration officials called the blueprint one of the largest tax cuts and broadest revamps of the tax system in history.
“We want to move as fast as we can,” Mnuchin said. “This bill is about creating economic growth and jobs.”
TAX ‘HOLIDAY’ PLAN
Among Trump’s plans for businesses is a provision that would allow smaller businesses, structured in such a way that they are affected by the individual tax rate, to use the 15 percent corporate threshold. There are millions of these businesses, known as “S Corporations,” and they are often small, family-owned firms.
But they also can include large law firms and lobbying shops. Mnuchin said special protections would be put in place to ensure that the 15 percent rate isn’t taken advantage of by the wealthiest earners, though he didn’t say how the White House would do that.
The White House also is proposing a one-time tax “holiday” to encourage companies to bring money being held in other countries back into the United States. Officials didn’t specify what the tax rate on that money would be, saying it’s currently part of negotiations on Capitol Hill. But they said providing this incentive would bring money back for investment and hiring.
“We expect that trillions of dollars will come back on shore and will be reinvested here in the United States, for capital goods and job creation,” Mnuchin said.
This process is called repatriation. It’s a contentious issue, as critics say the money is brought back and then paid out in dividends to shareholders instead of being used for hiring. But Democrats and Republicans have been open to the idea of a tax holiday. Former President Barack
Obama’s administration proposed using one to bring in money for new infrastructure projects, for example.
A key part of Trump’s tax plan during the campaign was to levy a tax or tariff against companies that move overseas and then try to sell their products back to American consumers. Cohn and Mnuchin said they were still looking at alternatives on this idea, and it was not an element of the plan rolled out Wednesday.
Cohn and Mnuchin said they found a plan embraced by House Republican leaders — known as a border-adjustment tax — to be unworkable
in its current form. But they’re going to work with key lawmakers to see if adjustments can be made, Mnuchin said.
THE PATH AHEAD
Mnuchin said White House officials are hopeful that their plan can win support from Democrats, but he said they are willing to forge ahead without them if necessary. They could use a budget process known as reconciliation to move the changes through the Senate with a simple majority vote, though that process requires that a bill be revenue-neutral.
The plan does not propose any budget cuts or tax increases that might offset the lost revenue, a choice that alarms some fiscal conservatives in Trump’s party who have spent years warning about the dangers of deficit spending.
Mnuchin also said the goal is to make permanent changes to the tax code but that the administration would consider a shorter-term change if it’s needed to win political support.
“This is what’s important to get the American economy going,” Mnuchin said. “So I hope [Democrats] don’t stand in the way. And I hope we see many Democrats who cross the aisle and support this. Having said that, if they don’t, we are prepared to look at the reconciliation process.”
Ahead of the announcement, Senate Minority Leader Charles Schumer, D-N.Y., said members of his party would scrutinize the details, but he predicted that the package could amount to major tax breaks for the wealthiest Americans.
“That’s not tax reform,” Schumer said on the Senate floor. “That’s just a tax giveaway to the very, very wealthy that will explode the deficit.”
After the plan’s unveiling, Senate Democrats derided it as tilting benefits to the wealthy, including to Trump himself. The real estate magnate might save millions of dollars in his personal taxes because of the changes.
“This is an unprincipled tax plan that will result in cuts for the 1 percent, conflicts for the president, crippling debt for America and crumbs for the working people,” said Sen. Ron Wyden of Oregon, ranking Democrat on the Finance Committee.
Tom Perez, the Democratic Party chairman, said “Trump’s
latest proposal is another gift to corporations and billionaires like himself.”
“Trump must release his tax returns, as millions of Americans are demanding, before Congress can consider any Trump tax plan,” Perez said. “We must know how much Trump would personally, financially benefit from his own proposal.”
Many Republicans said they are in broad agreement with the White House on the contours of the plan.
Speaking Wednesday morning on Capitol Hill, House Speaker Paul Ryan, R-Wis., called Trump’s framework “a critical step forward in this effort.”
“We’ve been briefed on what they are going to do, and it is basically along exactly the same lines we want to go,” Ryan said. “So we see this as progress being made, showing that we are moving and getting on the same page. We see this as a good thing.”
Rep. Kevin Brady, R-Texas, chairman of the Ways and Means Committee, was slightly more measured.
“I think there’s 80 percent or more common ground here — we’ve got some work to do,” Brady said. “I think the president is going bold here.”
Trump’s tax plan does have an advantage over others that have aimed to make up for lost revenue. While there is broad bipartisan support for plans that cut rates but make up for it with the elimination of certain tax breaks or reductions in spending, coalitions have frequently fallen apart over where those savings should come from.
The trouble Trump has is that while his administration says the tax cuts will over time pay for themselves, Congress’ nonpartisan budgetary analysts at the Joint Committee on Taxation won’t work off that same assumption.
Because of the rules of the Senate, legislation that would result in more borrowing over the long term would not be able to use the reconciliation process, making it vulnerable to a Democratic filibuster that would require 60 senators to advance the legislation.
Republicans hold just 52 seats in the chamber, and absent those 60 votes, Trump and his fellow Republicans would be able to pass cuts that would last for only 10 years.
After that time, the tax cuts would expire unless Congress took action.