White House Proposes Slashing Tax Rates for Individuals and Businesses

2017-04-26 14:15:02

 

White House Proposes Slashing Tax Rates for Individuals and Businesses

WASHINGTON — President Trump on Wednesday proposed sharp reductions in both individual and corporate income tax rates, reducing the number of individual income tax brackets to three — 10 percent, 25 percent and 35 percent — and easing the tax burden on most Americans, including the rich.

The Trump administration would double the standard deduction, essentially eliminating taxes on the first $24,000 of a couple’s earnings. It also called for the elimination of most itemized tax deductions but would leave in place the popular deductions for mortgage interest and charitable contributions. The estate tax and the alternative minimum tax, which Mr. Trump has railed against for years, would be repealed under his plan.

As expected, the White House did not include in its plan the border adjustment tax on imports that was prized by House Republicans. However, it did express broad support for switching to a so-called territorial tax system that would exempt company earnings abroad from taxation but would encourage companies to maintain their headquarters in the United States.

The plan would include a special one-time tax to entice companies to repatriate cash that they are parking overseas.

Mr. Trump also signaled support for changes to the tax code that would help families with child-care costs. His plan also would end the 3.8 percent tax on investment income that was imposed by the Affordable Care Act.

Trump administration officials called the blueprint one of the largest tax cuts and broadest overhauls of the tax system in history.

“We want to move as fast as we can,” Steven T. Mnuchin, the Treasury secretary, said at an event in Washington as the White House planned an afternoon rollout of its principles for what it bills as the first overhaul of the tax code in three decades. “This bill is about creating economic growth and jobs.”

He vowed it would be “the biggest tax cut and the largest tax reform in the history of our country,” in line with Mr. Trump’s grandiose portrayal. But there was no expectation that the White House would elucidate how the deep cuts would be financed, and administration officials are cognizant of the challenges of pushing through a proposal that could dramatically add to the national debt.

If, in fact, the proposal cuts taxes but fails to close loopholes or raise some other taxes, it would not be a true reform of the tax code. It would be a tax cut along the lines of President George W. Bush’s tax measure in 2001 and 2003. Nor is it clear that it would be the largest in history. Tax cutters from Warren G. Harding and Calvin Coolidge to John F. Kennedy and Ronald Reagan vie for that title.

Mr. Mnuchin offered few specifics about the blueprint, other than confirming that its centerpiece will be a 15 percent business tax rate, which would apply not only to corporations, but also to small businesses and other large owner-operated conglomerates, such as Mr. Trump’s real estate empire. He also said the White House is not on board with the border-adjustment tax that is central to House Republicans’ tax plan “in its current form,” setting up an intraparty struggle over the elements of the plan and how to offset the deep reductions envisioned.

Mr. Trump also wants to increase the standard deduction for individuals, according to people briefed on the plan, an attempt to fulfill his promises to provide tax cuts for middle-income people and simplify the process of filing returns. That proposal is likely to engender strong resistance from home builders and real estate agents, who fear it would diminish the importance of the mortgage interest deduction, as well as other sectors that could see the tax benefits associated with their businesses curbed or eliminated.

And Democrats are gearing up for a fight. “Trump’s latest proposal is another gift to corporations and billionaires like himself,” said Tom Perez, the Democratic Party chairman. “Trump must release his tax returns, as millions of Americans are demanding, before Congress can consider any Trump tax plan. We must know how much Trump would personally financially benefit from his own proposal.”

The long-awaited White House blueprint is intended to formally begin the push to get a tax overhaul done before the end of the year.

Officials have cautioned that the announcement will be light on detail and should not be viewed as the final word in what is likely to be a mammoth negotiation. While Mr. Trump has portrayed the effort as a top priority, he had no plans to appear publicly on Wednesday to roll it out, leaving that task to Mr. Mnuchin and Gary Cohn, the director of the National Economic Council, who are to brief reporters at the White House in the afternoon.

The plan contrasts starkly with one that has been championed by House Republicans, who had proposed paying for their tax cuts in part with the new tax on imports, an effort to ensure that the measure would not swell the deficit.

But on Wednesday, many Republicans — even leading proponents of that plan — insisted they were in broad agreement with the White House on the contours of a tax rewrite.

“I think there’s 80 percent or more common ground here — we’ve got some work to do,” said Representative Kevin Brady, Republican of Texas and the chairman of the Ways and Means Committee. “I think the president is going bold here.”

Mr. Mnuchin said this week that the tax changes would spur the economy to grow by 3 percent, which he said would pay for the vast cuts in federal revenues. But even Republicans privately concede that stronger growth would not entirely offset the cost. Democrats scoffed at the notion on Wednesday.

“America is a great nation,” said Representative Ted Lieu, Democrat of California, “but we haven’t yet discovered magic.” He called Mr. Trump’s tax proposal “mathematically impossible.”

Republicans have long called for comprehensive permanent changes to the tax code, but lately they have shown increasing openness to the possibility of tax cuts with an expiration date. If they embark on a plan to move legislation that adds to the deficit and cannot be filibustered by Democrats, Senate budget rules dictate that the tax cuts would expire after a decade.

“The goal is to make it permanent, but there’s lots of levers here,” Mr. Mnuchin said. “If we have them for 10 years, that’s better than nothing.”

Beyond cutting the tax rate to 15 percent for large corporations, which now pay a rate of 35 percent, Mr. Trump also wants that rate for a broad range of firms known as pass-through entities — including hedge funds, real estate concerns like Mr. Trump’s and large partnerships — that currently pay taxes at individual rates, which top off at 39.6 percent.

Acknowledging concerns that such a move could potentially be used as a tax shelter, Mr. Mnuchin insisted on Wednesday that the administration’s plan would not be used as a loophole to allow people to pay less tax than they should be paying.

The concern would be that lawyers, doctors, consultants or other wealthy people in partnerships could structure much of their personal income as business income, effectively reducing their tax rate from 39.6 percent to 15 percent.

“We don’t need a tax plan that allows the very rich to use pass-throughs to reduce their rates to 15 percent while average Americans are paying much more,” Senator Chuck Schumer of New York, the Democratic leader, said Wednesday. “That’s not tax reform. That’s just a tax giveaway to the very, very wealthy that will explode the deficit.”

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