Tax plan promises huge cuts
Trump’s $6 trillion reduction is first major revamp in a generation but leaves questions
WASHINGTON — The Republican tax overhaul has a lot for businesses to like — and a lot of unanswered questions for everyone else.
According to the plan, which Republican officials outlined Wednesday, many businesses would see a huge reduction in their tax bills while many middle-class Americans would see tax relief. The plan would reduce the number of individual tax brackets from seven to three and nearly double the standard deduction.
“This is a once-in-a-generation opportunity” to offer “historic tax relief to the American people,” President Donald Trump said as he pitched the plan, a nearly $6 trillion tax cut, during a speech Wednesday in Indianapolis.
“I’ve been waiting for this for a long time.”
The release of the tax framework kicks off a scramble by lawmakers to hammer out the details, craft legislation and, if all goes according to plan, pass legislation by the end of the year.
Meeting that schedule won’t be easy, in part because Trump has set out goals that to some extent contradict each other. Trump wants to cut taxes for business, a move that
generally helps upper-income taxpayers. But he also has insisted that his plan won’t amount to a significant tax cut for wealthy Americans.
“My plan is for the working people and my plan is for jobs,” he said before leaving Washington for Indiana. “I think there’s very little benefit for people of wealth.”
That remains to be seen once the details emerge. Already, however, the framework shows that one particular group could be hit hard — upper-middle-income wage earners in states that have significant income taxes, such as California and New York.
The plan calls for eliminating the current deduction for payment of state and local taxes, which would hit hard at taxpayers in those states who itemize their deductions.
In 2014, Californians received $101 billion from the state and local tax deduction — nearly a third of the total value of the deduction nationwide, according to the nonpartisan Tax Foundation.
Most of those states with high taxes voted Democratic in the last presidential election.
Other details for individual taxpayers have yet to be worked out, including the income levels for the new tax brackets and whether the individual tax cuts would favor the wealthy.
There’s more certainty for businesses.
The plan calls for slashing tax rates paid by corporations and socalled pass-through businesses, which range from mom-and-pop stores to law firms, hedge funds and other large partnerships that pay taxes based on the individual tax code.
The plan also fulfills other desires of the business community, including eliminating U.S. taxes on most foreign earnings and allowing companies to immediately write off the cost of new capital expenses instead of deducting them over time. The new expensing rules would last at least five years.
The U.S. Chamber of Commerce, which along with other business trade groups has been lobbying hard for a tax overhaul, said it was pleased with the outline.
“Now, we are entering into a crucial new phase of the effort to overhaul the tax code, and the hardest work is just beginning,” said Thomas Donohue, the chamber’s president.
Republicans are under great pressure to enact tax reform in the wake of their failure to pass a new health care law.
The tax plan was met Wednesday with widespread support from GOP lawmakers on Capitol Hill and their allied groups.
But the details will matter. As legislation is drafted and analyzed and winners and losers become apparent, Republicans are almost certain to struggle to hold their majority together.
To make more room to maneuver, Trump hopes to gain some Democratic support for his plan. Tax cuts needn’t be a partisan issue, he said in Indiana.
One issue for Democrats — and some Republicans — is likely to be the impact on the federal deficit, which the tax plan would worsen by about $2.2 trillion over the next 10 years, according to a preliminary analysis by the Committee for a Responsible Federal Budget.
Republican leaders have acknowledged that the plan initially would add to the budget deficit. They claim that stronger economic growth spurred by the tax cuts eventually would offset the deficit increase. Based on experience with past tax cuts, Democrats challenge that assertion.
House Minority Leader Nancy Pelosi, D-Calif., said Democrats have been willing to engage in “bipartisan tax reform,” but blasted the Republican outline as focused on the wealthy.
“Republicans’ tax framework is not tax reform, it is a framework that gives away the store to the wealthiest, while sticking the middle class with the bill,” she said.
The plan would preserve deductions for mortgage interest and charitable contributions, but opens the door to scaling them back.
The standard deduction would nearly double, to $24,000 for married filers. That would be a major benefit to taxpayers who don’t have enough deductions, such as mortgage interest, to itemize.