Planned cuts:
Rates slashed, but few details are provided
Putting the political dessert before the vegetables, the Trump administration Wednesday announced a plan for massive business and personal tax cuts, but provided only vague indications of how to pay for them.
While Treasury Secretary Steve Mnuchin promised that the tax cut “will pay for itself with (economic) growth” and with the elimination of different deductions and closing loopholes, he declined to provide any numbers.
“Today we’re putting out core principles,” he said.
The tax reform package, which Trump had promised since early in his 2016 presidential campaign, is about “creating jobs and creating economic growth,” Mnuchin said at a White House news conference. “And that’s why massive tax cuts and massive tax reform and simplifying the system is what we’re going to do.”
The plan calls for slashing the business tax rate to 15 percent from its current 35 percent, and potentially allowing many more small businesses to take advantage of that much reduced rate. Mnuchin and Gary Cohn, head of the president’s National Economic Council, admitted it remains a work in progress.
The top personal tax rate would drop from 39.6 to 35 percent, and the standard deduction would be doubled to $25,400 for a married couple. The plan also would eliminate the estate tax and the alternative minimum tax.
“We know this is difficult,” Cohn said. “We know what we’re asking for is a big bite.”
Democrats were quick to slam the plan, which they argued would funnel most of the savings to the country’s richest taxpayers.
“President Trump’s tax outline is a wish list for billionaires,” said San Francisco Rep. Nancy Pelosi, the Democratic leader in the House. “Besides which, nowhere does President Trump indicate how his deficitexploding tax plan will actually be paid for.”
Even GOP congressional leaders, who will have the final say on the tax plan, sounded noncommittal, although not opposed, on all the details of Trump’s proposal.
“We’ve been briefed on what they’re going to do, and it’s basically along exactly the same lines that we want to go,” House Speaker Paul Ryan, R-Wis., said at a news conference before the White House rollout. “We see this as progress is being made, and we’re moving and getting on the same page.”
Like any presidential program, the new tax plan is the product of plenty of political decisions. That’s probably why the none-too-detailed outline was released just a few days short of Saturday’s 100th day of Trump’s presidency, a traditional milestone of a president’s early success.
Trump’s plan, for example, will eliminate all tax deductions except those for home mortgage costs and charitable contributions, both overwhelmingly popular.
But it also will dump the current deduction for state and local taxes, which is a major hit for California taxpayers.
“It’s not the federal government’s job to be subsidizing the states,” Mnuchin said.
All 10 of the states with the highest tax burden, which will be most affected by the change, voted for Democrat Hillary Clinton in November. By contrast, nine of the 10 states with the lowest taxes — and the least damage from the proposed change — backed Trump.
That blue state-red state chasm is even more visible when the congressional delegations are compared. In the 10 high-tax states, which include California, New York and Illinois, Democrats in Congress outnumber Republicans 107 to 40. In the small states with lower taxes, it’s 23 congressional Democrats to 52 Republicans.
While Cohn admitted that he expected the tax plan would take hits “from the left and the right,” he said the plan as laid out Wednesday is what Trump wants to see enacted, even though the president is open to negotiating with congressional Republicans, since Democrats have not been involved in the tax talks.
“The president owns this plan — don’t be mistaken,” Cohn said.
The attacks already are coming.
Trump’s plan, for example, calls for an end to the alternative minimum tax, which was originally designed to ensure that the wealthy, who often have robust deductions, pay at least some taxes.
During his campaign for president, Trump railed against the tax, promising to kill it. But when a partial copy of Trump’s 2005 federal tax return was leaked to the press in March, it showed that $31 million of the $38.5 million he paid in taxes on his $153 million in income was because of the alternative minimum tax.
Without that tax, Trump only would have paid about $7 million in taxes.
When reporters at Wednesday’s news conference asked if the president would release his tax returns to show how he would be affected by the proposed tax changes, Mnuchin quickly dismissed that possibility.
The president has “no intention” of releasing his returns, he said. “I think the American population has plenty of information.”
The elimination of the estate tax also has plenty of implications for a man as wealthy as Trump, since it currently only affects individuals with estates of $5.45 million or higher, which represents a tiny fraction of American taxpayers.
Other changes in the plan also could mean millions in savings for Trump and other wealthy Americans.
Mnuchin and Cohn both said a lot of work remained to be done before the tax plan is put into a final form, and that talks are going on with GOP congressional leaders.
Admitting that much of the proposal was “a broad brush,” Cohn said much more information is coming, only not yet.
“We will let you know the details at the appropriate moment,” he said.
If those details were easy to resolve, though, there already would be a bill moving through Congress. And while Trump and his supporters insist the tax changes will unleash a tsunami of economic growth, others are less optimistic.
“This idea that growth can pay for these kinds of huge tax cuts is operating in fairyland,” Leon Panetta, a former Monterey County congressman and onetime Clinton administration budget director, told MSNBC. “That just doesn’t work, so if you’re going to do a tax cut, then show how you’re paying for it.”
The net cost of the tax bill is important, since Republicans want to pass it by the reconciliation process, which requires only a simple majority in the Senate, rather than open it up to an inevitable Democratic filibuster, which can only be broken by 60 votes that the Republicans don’t have.
But by Senate rules, a bill passed by reconciliation can’t significantly add to the deficit 10 years down the road, a requirement tax experts say Trump’s plan can’t meet.
An alternative, which was used by GOP President George W. Bush in his 2001 tax bill, is to put a 10-year sunset provision in the tax bill, ending any new rules a decade after they are passed.
It’s a possibility, Mnuchin said at a presentation held before the news conference.
“The goal is to make (the tax cuts) permanent, but there’s lots of levers here,” he said. “If we have them for 10 years, that’s better than nothing.” John Wildermuth is a San Francisco Chronicle staff writer. Email: jwildermuth@sfchronicle.com Twitter: @jfwildermuth