White House introduces sweeping tax-cut proposal
WASHINGTON — Racing to convey a sense of momentum to President Donald Trump’s sluggish legislative agenda, the White House unveiled what it called “the biggest tax cut” in U.S. history Wednesday, just ahead of the symbolic 100-day mark in the administration.
The tax plan, touted as an overhaul, bears the hallmark of other early Trump proposals: a loose set of bold goals intended to serve as an opening negotiation rather than a fully baked policy proposal.
The plan was immediately met by skepticism from budget groups and faces a daunting future on Capitol Hill.
At its center is a large reduction in corporate tax rates, to 15 percent — from multinational corporations to mom-and-pop shops. The current U.S. corporate tax rate is 35 percent, the highest among developed economies, but many companies pay a lower rate by using deductions in the tax code.
Many smaller businesses don’t pay the corporate rate but funnel their income through the individual tax code. The highest individual rate is 39.6 percent.
Trump’s team also unveiled tax breaks intended to help middle-income earners, including an increase in the standard deduction used by tens of millions of taxpayers.
Treasury Secretary Steven T. Mnuchin called the proposal “the biggest tax cut and the largest tax reform in the history of our country” during a speech Wednesday morning.
“We want to make business competitive and we want to simplify the personal tax system, lower taxes and create economic growth,” Mnuchin said.
Trump used all capital letters to preview the “big TAX REFORM AND TAX REDUCTION” in a tweet a few days ago.
The plan is sure to meet resistance and refinement on Capitol Hill, among Democrats who oppose heavy tax breaks for high earners and corporate interests, Republicans who worry about the deficit and a host of lobbying interests concerned with the potential loss of favored deductions.
If the plan does not pay for itself, it would need support from at least some Democrats under current Senate rules.
Republican leaders in the House have been working for years on their own plans, which now include a smaller tax break for companies — a drop to 20 percent for corporations and a maximum of 25 percent for pass-through companies.
Their plan also depends on a border adjustment tax to bring in $1 trillion in revenue over the next 10 years to help recover the cost of the lower rates.
That tax would subject importers, including retailers, to higher taxes and produce breaks for companies that export. The proposal has split the business community.
Mnuchin said the administration likes some aspects of the border tax but is not backing it now.
“We don’t think it works in its current form and we’re going to continue having discussions with them about revisions,” he said of negotiations with House leaders.
Senate Majority Leader Mitch McConnell was circumspect when asked about the administration’s proposed 15 percent corporate tax earlier this week.
“Look, tax reform is a — is a big — a big subject. Lots of moving parts,” he said, declining to commit to Trump’s plan.
House Speaker Paul Ryan praised the broad outlines as “basically along exactly the same lines that we want to go.”
“This is progress being made, showing that we’re moving and getting on the same page,” he said.
Trump’s advisers have argued that the plan will pay for itself through economic growth. But most economists dispute that analysis, which could put Trump at odds with long-held Republican promises to trim the deficit.
The nonpartisan Tax Policy Center estimated that Trump’s campaign tax plan, which includes eliminating the alternative minimum tax and other changes along with the tax cut to corporations announced Wednesday, would reduce federal revenue by $7.2 trillion over the first decade.
Marc Short, Trump’s director of legislative affairs, was deliberately vague on that point during a meeting with reporters this week, saying the administration did not intend to order an analysis of the plan’s deficit impact at this stage.
He called paying for the tax cuts without borrowing money “the goal,” but said the administration would weigh in later on whether it would support a plan that does not meet that goal.
Instead, the administration is arguing the overall benefits to the economy, which it says will be spurred by corporations eager to reinvest in American jobs.
The tax cuts will boost annual economic growth to 3 percent and “that growth will pay for the plan,” Mnuchin said.
Republicans plan to use controversial dynamic scoring, which assumes the effects of economic growth, to determine the tax plan’s budget impact.
While cutting the corporate rate is straightforward, assuring that other businesses that file individual tax returns pay a 15 percent rate is much more complicated.
Those companies are known as pass-through businesses because their income passes through the individual tax code. Many are small, owner-operated firms. But pass-throughs also can be large partnerships, such as hedge funds, law firms and some of Trump’s own businesses.
Mnuchin said the tax plan would be structured so the 15 percent rate “won’t be a loophole for rich people who should be paying higher rates.” He provided no details.
Democrats and many budget analysts are skeptical that Trump can slash business taxes without causing budget deficits to soar.
“We definitely need tax reform as a way to grow the economy,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
But she said higher economic growth won’t offset the plan’s lost revenue and it needs to be paid for by reducing tax breaks or other measures.
“What I don’t want to see is that this tax reform is going to be paid for by magic,” she said.
“What I’m certainly interested in finding out is, is this going to be the biggest debt generator in history?” said Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee, who believes tax reform can generate economic growth, but not the magnitude Trump’s team claims.
“The idea that it is going to generate untold billions of dollars through fantasy scoring, that’s kind of the difference.”
Trump’s interest in announcing the plan this week appeared to catch some of his advisers and allies on Capitol Hill off guard.
The president has dismissed the 100-day measuring stick, used for decades on presidents, as artificial. But at the same time, he has pushed his administration to make a vigorous case for his accomplishments ahead of Saturday’s 100th day in office.
A major legislative achievement has been a big gap on his early resume, hampered by the failure to craft a viable replacement plan for President Barack Obama’s signature health care bill.
Putting forth a partial tax plan at this stage carries risks. Trump has made other bold pushes only to retreat, which could hurt his negotiating position on Capitol Hill.
He gave lawmakers an ultimatum during the House health care debate, demanding an up-or-down vote, only to pull back at the last minute to preserve negotiations for later. The bill was pulled before a vote to avoid a loss on the floor.
This week, he backed down from a showdown with Congress over funding his signature promise to build a border wall in a supplemental budget request, choosing to fight for money later rather than risk a partial government shutdown Friday.
Comment threads are monitored for 48 hours after publication and then closed.