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Trump Proposes the Most Sweeping Tax Overhaul in Decades Trump Proposes the Most Sweeping Tax Overhaul in Decades
(about 3 hours later)
INDIANAPOLIS — President Trump on Wednesday began a full-throttle push to slash taxes and salvage what is left of his foundering legislative agenda in Congress, proposing a politically challenging array of tax cuts for individuals and businesses that would constitute the most sweeping changes to the federal tax code in decades. INDIANAPOLIS — President Trump on Wednesday began an ambitious push to slash taxes and salvage what remains of his embattled legislative agenda in Congress this year, proposing a politically challenging array of tax cuts for individuals and businesses that would constitute the most sweeping changes to the federal tax code in decades.
Mr. Trump, smarting from the latest defeat this week of his efforts to dismantle the Affordable Care Act, cast his tax plan as an economic imperative and the fulfillment of a promise to his coalition of working-class supporters to deliver benefits in the form of lower taxes, better jobs and higher wages. But the president offered few details about how working people might benefit from a plan that has explicit and substantial rewards for wealthy people and corporations, including the elimination of taxes on large inheritances and deep reductions in the rates paid by businesses large and small. Mr. Trump, smarting from the latest defeat this week of his efforts to dismantle the Affordable Care Act, cast the tax plan as an economic imperative and the fulfillment of a promise to his working-class supporters to deliver benefits in the form of lower taxes, better jobs and higher wages.
“This is a revolutionary change, and the biggest winners will be middle class workers as jobs start pouring into our country, as companies start competing for American labor, and as wages continue to grow,” Mr. Trump told hundreds of supporters in a nondescript building at the Indiana State Fair Grounds. “This will be the lowest top marginal income tax rate for small and midsize businesses in more than 80 years.” “This is a revolutionary change, and the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven’t seen in many years,” Mr. Trump told hundreds of supporters in a speech at the Indiana State Fair Grounds.
Whatever the economic effects, the political stakes of the plan were unmistakable for a president who is desperate to score a legislative win before his first year in office draws to a close. In an apparent nod to the harsh political realities the tax plan faces and festering divisions among Republicans that have derailed the rest of his agenda, Mr. Trump made an explicit bid to Democrats to support the plan. However, Republican congressional leaders and senior White House officials have said privately they expect to use special budget rules that would allow them to get the bill through Congress without Democratic support. But the president offered no measure of the plan’s cost and scant detail about how working people would benefit from a proposal that has explicit and substantial rewards for wealthy people and corporations, including the elimination of taxes on large inheritances and deep reductions in the rates paid by businesses large and small.
“There is no reason that Democrats and Republicans in Congress should not come together to deliver this giant win for the American people and begin the middle class miracle once again,” Mr. Trump said. After months of secret talks among Republicans, the nine-page proposal produced by the so-called Big Six working group prompts as many questions as it provides answers. Without more details, it is difficult to show how middle-income families will see the most benefit from the tax overhaul — or if it will favor the richest Americans.
Senior administration officials who briefed reporters on the proposal said the White House was fully aligned with the tax-writing committees in the House and Senate, after months of private talks aimed at gaining consensus on the issue. On the individual side, the plan would collapse the tax brackets from seven to three, with tax rates of 12 percent, 25 percent and 35 percent, the president said. The current top rate is 39.6 percent and the lowest rate is 10 percent. The framework also gives Congress the option of creating a higher, fourth, rate above 35 percent in tax plan to ensure that the wealthy are paying their fair share.
While the Republican leadership claims to be unified on the tax plan, they must now sell it to lawmakers who have proved to be deeply divided this year. At a House retreat on Wednesday morning, Representative Kevin Brady of Texas, the Republican chairman of the Ways and Means Committee, walked members through the framework and talked about the importance of coming together to fix the tax code. The plan aims to simplify and cut taxes for the middle class by doubling the standard deduction to $12,000 for individuals and to $24,000 for married couples filing jointly. That would allow people to avoid a complicated process of itemizing their taxes to claim various credits and deductions. It would increase the child tax credit from $1,000 to an unspecified amount, and create a new $500 tax credit for non-child dependents, such as the elderly.
“Today is not about the House plan, it’s about a unified framework,” Mr. Brady said, according to a person in the room. Provisions such as the alternative minimum tax and the estate tax, a levy on inherited wealth that Mr. Trump has derided for years, would be gone under the Republican proposal.
Enthusiasm about cutting taxes was palpable at times. When Rep. Peter Roskam of Illinois, the tax policy chairman on the committee, detailed plans to dump the A.M.T. and estate taxes, the audience in the room erupted in cheers. The proposal calls for reducing the corporate tax rate to 20 percent from 35 percent, a shift that supporters say is needed to make American companies more competitive with their counterparts around the world.
Democrats and progressive groups, meanwhile, swiftly denounced the tax plan as a false promise to the middle class. A new tax rate of 25 percent would also be created for so-called pass-through businesses, such as partnerships and sole proprietorships, which are currently taxed at the rate of their owners. About 95 percent of businesses in the United States are structured as pass-throughs and they generate a majority of the government’s corporate tax revenue.
“If this framework is all about the middle class, then Trump tower is middle-class housing,” said Senator Ron Wyden, a Democrat from Oregon. “It violates Trump’s tax pledge that the rich would not gain at all under his plan by offering sweetheart deals for powerful CEOs, giveaways for campaign coffers and a new way to cheat taxes for Mar-a-Lago’s loyal members.” “This will be the lowest top marginal income tax rate for small and midsize businesses in this country in more than 80 years,” Mr. Trump said.
After months of secret talks, the proposal produced by the so-called Big Six working group provides as many questions as it does answers. Without those details, it is difficult to say whether middle-income families will see the most benefit from the tax overhaul or if it will favor the richest Americans. While Republican leaders claims to be united on the tax plan, they must now sell it to lawmakers who have been deeply divided this year. The push began at a House Republican retreat on Wednesday at Fort McNair in Washington, where Representative Kevin Brady of Texas, the Republican chairman of the Ways and Means Committee, walked members through the blueprint and talked about the importance of coming together to fix the tax code.
On the individual side, the plan would collapse the tax brackets from seven to three, with tax rates of 12 percent, 25 percent and 35 percent, administration officials said. The current top rate is 39.6 percent and the lowest rate is 10 percent. Later, in a hopeful sign for Republican leaders fretting privately about keeping their rank-and-file together, the conservative Freedom Caucus, whose members have derailed the party’s initiatives with hard-line demands, issued a statement of support calling the plan “forward looking,” and pledging to back the party’s budget designed to ensure its passage.
The framework also gives Congress the option of creating a higher, fourth, rate above 35 percent to ensure that the rich are paying their fair share. But it does not specify what income levels would be associated with the higher rate, what that new rate might be or explicitly direct Congress to implement a fourth bracket. The political stakes are high for a president who is desperate to score a legislative win before his first year in office draws to a close. Mr. Trump, who has eschewed the advocacy tours that his predecessors have used to build support for their top domestic priorities, made a rare direct appeal to voters during his speech, imploring them to call their representatives and senators and demand action on the tax proposal. “Let them know you’re watching,” Mr. Trump said. “Let them know you’re waiting.”
The plan aims to simplify and cut taxes for the middle class by doubling the standard deduction to $12,000 for individuals and to $24,000 for married couples. That would allow people to avoid a complicated process of itemizing their taxes to claim various credits and deductions. It would also increase the child tax credit from $1,000 to an unspecified amount and create a new $500 tax credit for dependents, such as the elderly, who are not children. In an apparent nod to the harsh political realities the tax plan faces, Mr. Trump made an explicit overture to Democrats to support the plan.
Provisions such as the alternative minimum tax and the estate tax, a tax on inherited wealth which Mr. Trump has derided over the years, would be gone under the Republican proposal. Most itemized deductions, including those widely used for state and local tax expenses, would also be eliminated. However, the plan would preserve the deductions for mortgage interest expenses and charitable giving and keep incentives for education and retirement savings plans. “Democrats and Republicans in Congress should come together, finally, to deliver this giant win for the American people,” Mr. Trump said.
The changes to taxation for companies would be equally dramatic. The proposal calls for reducing the corporate tax rate to 20 percent from 35 percent, a shift that is intended to make American companies more competitive with their counterparts around the world. But behind the scenes, Republican congressional leaders and senior White House officials have discussed bypassing Democrats and using special budget rules that would allow them to get the bill through Congress on a simple majority vote. And Mr. Trump paired his scripted talk of bipartisanship with an impromptu threat to Senator Joe Donnelly, Democrat of Indiana, saying he would personally work to defeat the senator’s re-election bid next year if he does not fall into line on the tax plan.
On Wednesday, Mr. Trump said his earlier calls for a corporate tax rate of 15 percent — which he repeated as recently as this week — was simply a negotiating tactic. “If Senator Donnelly doesn’t approve it — because, you know, he’s on the other side — we will come here, we will campaign against him like you wouldn’t believe,” Mr. Trump said as Mr. Donnelly looked on from the audience.
“I wanted to start at 15 so that we got 20,” Mr. Trump said. “20 is a perfect number.” Conservatives cheered the plan as a bold and long-awaited step to spur economic growth, while Democratic leaders condemned it as an irresponsible boon to the rich. And some budget watchdogs expressed worry about the long-term impact of a plan they said could cost more than $2 trillion over a decade.
A new tax rate would be created for so-called pass-through businesses. These businesses, partnerships and sole proprietorships whose profits “pass through” to their owners, would be taxed at a rate of 25 percent, not the individual rate of their owners, like under the current law. About 95 percent of businesses in the United States are structured as pass-throughs and they generate a majority of the government’s corporate tax revenue. Mr. Trump, who has broken with precedent for modern American presidents by refusing to release his tax returns, insisted that wealthy people like him would not benefit — an assertion that seemed improbable for a man who runs a family-owned real estate empire and whose children stand to inherit vast sums.
As with the individual side, some of the thornier business tax issues remain unaddressed. It will be left to Congress to create safeguards that prevent wealthy individuals from incorporating as pass-through businesses, which would tax their income at a lower rate. Another administration official insisted that measures would be put in place so that there are not “games played” in this regard. “Tax reform will protect low-income and middle-income households, not the wealthy and well-connected,” Mr. Trump said, framing a proposal that would affect hundreds of millions of Americans in terms of his own self-interest. “I’m doing the right thing, and it’s not good for me, believe me.”
Another big change for companies would be a limitation of the deductibility for corporate interest expenses in exchange for the opportunity to immediately expense business investments. The ability to write these expenses off immediately would last only five years, and the limitations for deducting interest have yet to be determined. This is expected to set off a fight among business groups, many seeking either full deductibility or permanent immediate expensing. Democrats scoffed. “If this framework is all about the middle class, then Trump Tower is middle-class housing,” said Senator Ron Wyden of Oregon, the ranking Democrat on the Finance Committee. “It violates Trump’s tax pledge that the rich would not gain at all under his plan by offering sweetheart deals for powerful CEOs, giveaways for campaign coffers and a new way to cheat taxes for Mar-a-Lago’s loyal members.”
The plan also calls on the tax committees to eliminate most of the tax credits that businesses currently use. Among those that would remain are the prized tax credit for research and development and the low-income-housing credit, which many Democrats support. As with the individual side, some of the thornier business tax issues remain unaddressed. It will be left to Congress to create safeguards that prevent wealthy individuals from incorporating as pass-through businesses, which would tax their income at a lower rate.
Perhaps the most major yet murky shift on the business side is the move from a worldwide tax system to a territorial tax system. In theory this means that companies would not be taxed on their overseas earnings, but to prevent erosion of the tax base, Republicans plan to impose some form of tax on foreign profits at a rate that has yet to be determined. Most itemized deductions, including those widely used for state and local tax expenses, would also be eliminated, along with most of the tax credits that businesses use. However, the plan would preserve the deductions for mortgage interest expenses and charitable giving and keep incentives for education and retirement savings plans, as well as preserve the tax credits for research and development and low-income-housing on the business side.
The transition to the new system would also include a one-time repatriation tax to encourage companies to bring offshore profits back to the United States. There would be different repatriation rates for different types of assets, but as with many parts of the proposal, the rates would be up to Congress to decide. Another big change for companies would be a limitation of the deductibility for corporate interest expenses, in exchange for the opportunity to immediately expense business investments. The ability to immediately write off these expenses would last only five years, and the limitations for deducting interest have yet to be determined.
Perhaps the most significant, yet murky, shift is the move from a worldwide tax system to a territorial tax system for multinational corporations. In theory, this means that companies would not be taxed on their overseas earnings. But to prevent erosion of the tax base, Republicans plan to impose some form of tax on foreign profits. The transition to the new system would also include a one-time repatriation tax at yet-to-be-determined rates to encourage companies to bring offshore profits back home.
Administration officials did not provide a cost estimate for the plan. Members of the Senate Budget Committee have agreed on a budget resolution that would allow for a $1.5 trillion tax cut over 10 years. Studies of similar plans produced by Mr. Trump and House Republicans have been projected to cost $3 trillion to $7 trillion over a decade.Administration officials did not provide a cost estimate for the plan. Members of the Senate Budget Committee have agreed on a budget resolution that would allow for a $1.5 trillion tax cut over 10 years. Studies of similar plans produced by Mr. Trump and House Republicans have been projected to cost $3 trillion to $7 trillion over a decade.
A preliminary estimate from the nonpartisan Committee for a Responsible Federal Budget found that the policies in the framework would cost around $2.2 trillion over a decade. Republicans say economic growth will compensate for lost revenue. Senator Patrick J. Toomey, a Pennsylvania Republican who sits on the Finance Committee, said he was confident that a growing economy would pay for the tax cuts.
The Republicans pitching the plan say economic growth will compensate for lost revenue. During the campaign, Mr. Trump said overhauling the tax code would raise economic growth to 4 percent.
Senator Pat Toomey, a Pennsylvania Republican who sits on the finance committee, said he was confident that a growing economy would pay for the tax cuts and that the plan was fiscally responsible.
“This tax plan will be deficit reducing,” Mr. Toomey said.“This tax plan will be deficit reducing,” Mr. Toomey said.
Conservative groups such as Heritage Action and the Club for Growth cheered the release of the tax plan on Wednesday as a remedy desperately needed to kick-start a sluggish economy.
“The outline is both aggressive and very pro-growth with its rate reductions,” said David McIntosh, president of the Club for Growth.
Grover Norquist, president of Americans for Tax Reform, celebrated the proposal as a plan that would “turbocharge the economy” and make America the best place in the world to invest.
The Senate Democratic leader, Chuck Schumer of New York, branded the tax proposal as a boon to the rich, calling it “little more than an across-the-board tax cut for America’s millionaires and billionaires” that would do little, at best, for middle-class people.
“It seems that President Trump and Republicans have designed their plan to be cheered in the country clubs and the corporate boardrooms,” Mr. Schumer said.