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Trump Campaign Offers Conflicting Message on $1 Trillion Tax Cut Plan Conflicting Policy From Trump: To Keep, and Remove, Tax Cut
(about 7 hours later)
WASHINGTON — A few hours after Donald J. Trump publicly backed away on Thursday from a $1 trillion tax cut for small businesses, campaign aides privately assured a leading small-business group that Mr. Trump in fact remained committed to the proposal — winning the group’s endorsement. WASHINGTON — A few hours after Donald J. Trump publicly backed away from a $1 trillion tax cut for small businesses, campaign aides on Thursday privately assured a leading small-business group that Mr. Trump in fact remained committed to the proposal — winning the group’s endorsement.
The campaign then reiterated to the Tax Foundation, a conservative-leaning Washington think tank it asked to price the plan, that Mr. Trump had indeed eliminated the tax cut. The campaign then told the Tax Foundation, a conservative-leaning Washington think tank it asked to price the plan, that Mr. Trump had indeed decided to eliminate the tax cut.
Call it the trillion-dollar lie: Both assertions cannot be true.Call it the trillion-dollar lie: Both assertions cannot be true.
At issue is whether small businesses, partnerships and other “pass-through” entities would get a 15 percent tax rate under the Trump plan, as originally promised, or would continue to pay individual income tax rates as they do now — as high as 33 percent — under the latest Trump plan. The campaign’s conflicting accounts of its own proposal are particularly remarkable because the Republican presidential nominee and his advisers have taken months to refine the details. At issue is whether Mr. Trump’s plan would tax small businesses, partnerships and other “passthrough” entities at the same 15 percent rate as large corporations, as he proposed last year, or whether they would continue to pay individual income taxes, at rates as high as 33 percent.
But in this case, telling two versions of the same story has yielded some important benefits. The campaign’s conflicting accounts of its own proposal are particularly remarkable because Mr. Trump and his advisers have taken months to refine the details, which Mr. Trump, the Republican presidential nominee, unveiled in an economic policy speech on Thursday in New York.
Dropping the tax cut is central to Mr. Trump’s optimistic claim that his plan would not increase the federal debt. But by simultaneously promising to keep the tax cut, the campaign won the support of the National Federation of Independent Business, an influential small-business lobbying group. In this case, however, telling two versions of the same story benefited the Trump campaign.
“We’re comfortable” that Mr. Trump is committed to preserving the tax break, said Jack Mozloom, a spokesman for the group. “We have it directly from his campaign.” Dropping the tax cut was central to Mr. Trump’s optimistic claim that his plan would not increase the federal debt. But by simultaneously promising to keep the tax cut, the campaign won the support of the National Federation of Independent Business, an influential small-business lobbying group.
A spokeswoman for the Trump campaign did not immediately respond to emailed questions. “We’re comfortable” that Mr. Trump is committed to preserving the tax break, Jack Mozloom, a spokesman for the group, said Friday morning. “We have it directly from his campaign.”
Mr. Trump on Thursday detailed a package of tax cuts that he claimed would cost $2.6 trillion, far less than the $10 trillion in cuts he proposed last year. The Tax Foundation was not so comfortable.
The estimated cost is based on an analysis by the Tax Foundation. Alan Cole, an economist at the foundation, said the Trump campaign provided him with the details of the plan, including the elimination of the small-business tax cut. “There is a disconnect between the plan as understood by us and the plan as understood by the N.F.I.B.,” said Alan Cole, an economist at the foundation who worked on the cost estimate that Mr. Trump cited in his speech. “And I think your inquiry into this is probably a productive one.”
After learning about the statement by the business group, Mr. Cole said that he spoke again to the Trump campaign, and that he was assured that Mr. Trump still intended to eliminate the tax cut. The campaign told him it was making a more modest change in the plan that might reduce taxation for some small businesses. Steven Mnuchin, Mr. Trump’s finance chairman, said Friday that the campaign’s tax plan had not changed at any point on Thursday.
“There is a disconnect between the plan as understood by us and the plan as understood by the N.F.I.B.,” Mr. Cole said on Friday. “And I think your inquiry into this is probably a productive one.” He said Mr. Trump was proposing to let any business pay the same low tax rate, 15 percent, on all income retained for business purposes. In effect, that would apply corporate tax rates to some passthrough income.
Under current law, corporations are subject to one set of tax rates while income from other kinds of businesses entities, like partnerships, is taxed like any other personal income. This is known as pass-through income. In general, the largest businesses are organized as corporations while most smaller businesses are organized as various kinds of pass-throughs. “The intent of the plan is that big and small businesses have tax relief,” he said.
Mr. Trump has proposed a 15 percent tax rate for corporations. And last year, he proposed taxing pass-through income at the same rate. That would reduce federal tax revenues by around $1 trillion over 10 years, according to the Tax Foundation. He declined to comment on the conflicting accounts provided by the two groups.
The small-business federation said on Thursday that it was endorsing Mr. Trump’s tax plan because it preserves this specific proposal. There is much at stake in the details, both in tax dollars and in the politics of a tax-code overhaul. Passthrough businesses, which range from mom-and-pop shops to law firms and large real estate partnerships, have become increasingly common in recent decades and now produce more than half of all business income. Under current law, that income is passed through to the tax returns of the business owners, where it is taxed at the same rates as a worker’s wages.
“We strongly support Mr. Trump’s proposal to create a single business tax rate that would create parity between small businesses and their larger competitors,” Juanita Duggan, the group’s president, said in a statement. Corporations generally pay a lower tax rate, but shareholders must also pay a second round of taxes on any corporate profits distributed as dividends.
But if the group is right, Mr. Trump’s math is wrong. Both Democrats and Republicans want to overhaul the corporate tax system, which combines a high headline rate with endless loopholes.
Mr. Trump has said he would reduce taxation by $4.4 trillion, but the actual cost would be just $2.6 trillion, he claimed, because the cuts would generate explosive economic growth that would offset some of the lost revenue. He said he expected additional economic gains from changes in other aspects of federal policy, including less regulation and new trade agreements. The rest of the cost would be offset by spending cuts. But the question of what to do about passthroughs has bedeviled those efforts. Democrats have resisted changes to small-business taxes because they have not wanted to lower the top income tax rates for individuals — the rates small businesses pay. Republicans have stood firmly against a tax overhaul for corporations only, worrying that leaving small-business taxes unchanged would look elitist.
There is no precedent for a tax cut’s generating that kind of economic activity, nor for a similar boost from changes in regulation. And Mr. Trump has not detailed any specific cuts he would make in federal spending. Finally, the plan works only without the tax break the small-business group says it was promised. That standoff has left intact a corporate tax code that both sides believe has put American companies at a global disadvantage.
If Mr. Trump wants to keep the small-business tax cut, and avoid increasing the debt, he would need to find $1 trillion somewhere else. Mr. Trump proposed last year to sharply reduce the corporate rate to 15 percent, from 35 percent, and to apply the same rate to passthrough income. Democrats sharply criticized that proposal as a giveaway to the owners of passthrough businesses, a group that includes many real estate developers like Mr. Trump, because they would not need to pay a second round of taxes on dividends. The Tax Foundation says it would cost the government about $1 trillion over 10 years.
On Thursday, Mr. Trump’s campaign initially indicated that it had decided to abandon that plan.
Mr. Trump took the stage at the Waldorf Astoria, before the members of the Economic Club of New York, and declared that his new tax plan would cost just $2.6 trillion, far less than the estimated $10 trillion price tag for the previous version of his plan.
That estimated cost came from the Tax Foundation, which performed an analysis based on the specific changes detailed by the Trump campaign, including the elimination of the small-business tax cut, the Tax Foundation’s Mr. Cole said.
The Trump campaign also issued a summary of the proposal that said Mr. Trump intended to reduce the corporate income tax rate to 15 percent, but made no mention of passthroughs.
Mr. Mozloom said his group, which strongly advocates a small-business cut, was surprised and reached out to the campaign. A few hours later, convinced by campaign aides that Mr. Trump intended to keep the tax break, the N.F.I.B. renewed its endorsement.
“We strongly support Mr. Trump’s proposal to create a single business tax rate that would create parity between small businesses and their larger competitors,” Juanita Duggan, the group’s president, said in the statement.
The Trump campaign also changed the language of its proposal to refer to the “business” tax rate rather than “corporate” tax rate.
But after learning about the endorsement Thursday afternoon, Mr. Cole of the Tax Foundation said that he spoke again to the campaign and that he was assured Mr. Trump still intended to eliminate the tax cut. The campaign told him it was making a more modest change in the plan that would reduce taxation for some small businesses.
The details of the Trump campaign’s plan remain unclear, as does the cost.
“There is a proposal and it’s in the process of being priced out and some details are being filled in,” said Larry Kudlow, an economic commentator and adviser to Mr. Trump. “If Mr. Trump becomes president and submits this legislation, it will all have to get worked through,” he said.
Kyle Pomerleau, the Tax Foundation’s director of federal projects, said he had hoped to publish an analysis of Mr. Trump’s plan on Friday, but it remained incomplete.
“As time goes on,” he said, “unfortunately things are becoming less clear.”