Trump pushes dramatic tax code overhaul
Ambitious initiative includes cuts for U.S. businesses, individuals
WASHINGTON — Dismissing concerns about ballooning federal deficits, President Donald Trump on Wednesday proposed dramatic tax cuts for U.S. businesses and individuals — outlining an overhaul his administration promises will spur economic growth and simplify America’s tangle of tax code rules.
“The White House’s proposal “is going to be the biggest tax cut and the largest tax reform in the history of our country,” said Treasury Secretary Steven Mnuchin, speaking at an event hosted by The Hill, “and we are committed to seeing this through.”
Mr. Trump’s most ambitious legislative initiative to date — a one-page sketch short on detail — would reduce the top corporate tax rate by 20 percentage points and allow private business owners to claim the new lower rate for their take-home pay. It would whittle the number of tax brackets for individuals from seven to three, lower the top tax rate from 39.6 percent to 35 percent and double the standard amount taxpayers could deduct.
It would eliminate the estate tax and reduce taxes on investments, typically paid by the rich. It would further reduce the tax burden for the wealthy by eliminating the catch-all alternative minimum tax, which takes an additional bite out of high-income Americans.
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 does not propose any budget cuts or tax increases that might offset the lost revenue, a choice that alarms some fiscal conservatives in Mr. Trump’s party who have spent years railing about the dangers of deficit spending.
It also does not fully embrace tax proposals — including a controversial tax on imported goods known as a border adjustment tax — backed by Republican House Speaker Paul Ryan, an essential ally if the president is to make good on his promise to deliver a tax overhaul that creates growth and brings jobs to struggling parts of the country.
Still, “I would never, ever bet against this president,” said Gary Cohn, director of the White House National Economic Council. “He understands that there are a lot people who work hard and feel like they’re not getting ahead.”
The president’s proposal marks a rehash of an economic theory popularized in the 1980s. Trump officials essentially argue
that benefits from the tax cuts will trickle down from higher profits for companies into stronger pay raises for workers and greater consumer spending. This expected surge in growth, in theory, would be enough to keep the federal budget deficit from shooting upward.
Some economists agree, but most budget experts say it’s unlikely.
“Unfortunately, it seems the administration is using economic growth like magic beans — the cheap solution to all our problems,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. “But there is no golden goose at the top of the tax cut beanstalk, just mountains of debt.”
Tax experts also said far more details were needed to determine how average Americans would be affected.
“The impact on Joe Taxpayer is unknown,” said Marc Gerson, vice chair of the tax department of law firm Miller & Chevalier in Washington. “There’s not enough specificity. It’s hard for taxpayers to determine where they’ll come out.”
Mr. Trump’s administration is now looking to bolster the Child and Dependent Care Credit, which allows working parents to slice a maximum of $2,100 from their tax bill for spending on child care, according to a senior administration official.
The financial burden of child care varies widely across the country. In Alabama, for example, the average cost of infant care annually is about $5,500, while parents in Washington, D.C., typically shell out $22,000.
Mr. Trump’s plan resembles aspects of the tax ideas he campaigned on last year. The right-learning Tax Foundation estimated that, even after accounting for growth, the Trump campaign plan would put a $2.6 to $3.9 trillion hole in the budget over 10 years.
“We know this is difficult,” Mr. Cohn said. “We know what we’re asking for is a big bite.”
Despite the details provided Wednesday, the proposal leaves significant open questions that could affect its impact on taxpayers and the economy.
The administration has yet to decide the incomes at which the new personal tax rates — 10 percent, 25 percent and 35 percent — would apply, meaning that some Americans might see their taxes increase if they get bumped into a higher bracket. It also has yet to spell out how the plan would stop wealthier Americans from exploiting a lower corporate rate to reduce their own taxes.
Administration officials intend to finalize details with members of the House and Senate in the coming weeks for what would be the first massive rewrite of the U.S. tax code since 1986.
President Ronald Reagan was the last to shepherd a major tax overhaul through Washington, but he did it by working with Democrats to cut a deal. Mr. Mnuchin said Wednesday that he would like to negotiate details of the plan with Democrats but would cut them out of talks if necessary and seek only support from Republicans, perhaps by pursuing a strategy known as “reconciliation.” Using that process, a tax overhaul could escape a 60vote requirement in the Senate, but it also would have a 10-year expiration date.
The possibility of a deficit increase, unacceptable to some Republicans, means that Mr. Trump would need to attract Democratic support to make the overhaul permanent.
Speaking Wednesday morning on Capitol Hill, Mr. Ryan called Mr. 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,” Mr. 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.”
Democrats, meanwhile, must decide whether to negotiate with an unpopular president who is threatening to pull away tax revenue that pays for many of their cherished social programs.
Senate Democrats say his plan tilts its benefits to the wealthy, including Mr. 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, the ranking Democrat on the Finance Committee.
The Trump proposal would double the standard deduction for married couples to more than $24,000, while keeping deductions for charitable giving and mortgage interest payments.
On the other hand, it would trim other deductions, including for state and local tax payments, a change that could alienate lawmakers in states such as California and New York with higher state taxes.
“It’s not the federal government’s job to be subsidizing the states,” said Mr. Mnuchin.
The administration has emphasized that the plan is focused on simplifying the tax code and helping middle class Americans.
In a boon for wealthier taxpayers, it would repeal the 3.8 percent tax on investment income from former President Barack Obama’s health care law.
Corporations would not have to pay taxes on their foreign profits, which is seen as an unusual proposal for a president who has championed an “America first” approach and railed against companies that move jobs and resources overseas.
They would also enjoy a special, one-time opportunity to bring home cash that they are parking overseas, though administration officials would not say how low that rate would be or how they would ensure that money would be invested productively.
The plan “would tremendously help high earners,” says Brian Thompson, a certified public accountant in Chicago.
The proposal has yet to be vetted for its precise impact on top earners, as several specifics are still being determined.
On the corporate side, the top marginal tax rate would fall from 35 percent to 15 percent.
Small businesses that account for their owners’ personal incomes would see their top tax rate go from 39.6 percent to that corporate tax rate of 15 percent.
Mr. Mnuchin said the change for small business owners — a group that under the current definition could include doctors, lawyers and even major real estate companies — would be done in a way that would ensure wealthier Americans could not exploit the change to pay less than intentioned in taxes.