Trump's plan to slash business taxes seen as 'guidepost' by congressional Republicans
President Donald Trump unveiled a one-page plan on Wednesday proposing deep U.S. tax cuts, many for businesses, that would make the federal deficit balloon if enacted, drawing a cautious welcome from fiscal conservatives and financial markets.
While the proposed tax cuts would please those helped by them, such as multinational corporations and wealthy taxpayers, Trump's package fell far short of the kind of comprehensive tax reform that both parties in Washington have sought for years.
As his milestone 100th day in office on Saturday nears, Trump has been scrambling to show progress on his agenda. The tax plan, though meager in detail, matched up closely with the promises he made during his victorious 2016 election campaign.
Investors, who had been awaiting tax-plan details for months, largely shrugged off the news, with many saying it was still short on specifics and faced a long road to enactment. “Wake me up when something actually gets signed into law,” said Greg McBride, chief financial analyst at Bankrate.com in West Palm Beach, Florida
Only Congress can make major tax law changes, and Democrats immediately attacked the Republican president's plan as fiscally irresponsible.
"President Trump’s tax plan is short on details and long on giveaways to big corporations and billionaires," said Nancy Pelosi, the top Democrat in the House of Representatives.
House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the top Republicans on the congressional tax-writing committees welcomed the Trump proposals, while leaving space for details to change as legislation evolves.
“The principles outlined by the Trump administration today will serve as critical guideposts" as Congress and the administration work on tax changes, they said in a statement.
U.S. stocks pared gains on Wednesday after the plan was unveiled. While Wall Street has been optimistic about the prospect of corporate tax cuts since Trump's election in November, the stocks rally has stalled lately because of a lack of clarity about Trump's policies and concern over his failure to push through a healthcare bill.
The benchmark Dow Jones industrial average of blue-chip stocks .DJI on Wednesday closed down one-tenth of 1 percent.
Some analysts said investors were aware of the long road ahead before any tax bill is passed.
"We have a pretty good idea that he (Trump) is targeting lower corporate taxes, lower individual taxes and a simplification of the process, but all that is in an ideal world," said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.
BUSINESS TAX RATE CUTS
In the plan, unveiled at the White House by Trump economic adviser Gary Cohn and Treasury Secretary Steve Mnuchin, Trump proposed cutting to 15 percent both the income tax rate paid by public corporations and that paid by "pass-through" businesses, including partnerships, S corporations and sole proprietorships.
The top corporate rate is now 35 percent, though few multinational companies pay it, thanks to loopholes that allow them to lower their effective tax rates. Despite this, corporations have pushed for a tax rate cut for many years, and Trump has obliged.
The top rate for pass-throughs, which account for most small businesses, is 39.6 percent, the same top rate paid by individuals. Unlike corporations, the profits of "pass-through" businesses flow directly onto their owners' tax returns.
In another concession to long-standing demands from corporate America, Trump called for bringing corporate profits being held offshore by multinationals into the country at a rate well below the current 35 percent rate now owed on "repatriated" earnings. He did not say what that rate would be, but said the administration was working with Congress on a low rate.
About $2.6 trillion in profits are being held tax-exempt abroad by U.S. multinationals under a rule that says they are only taxable if brought into the United States.
If enacted, the repatriation tax holiday would produce a one-time surge in government revenue. If it were dedicated to infrastructure spending, it could attract votes from Democrats.
The plan also urged adoption of a "territorial" corporate tax system that would largely exempt foreign profits of U.S.-based corporations from federal taxation.
Ryan expressed optimism about Trump's plan, even though it excluded a "border adjustment" tax on imports he has promoted. That idea was part of initiatives floated by House Republicans as a way to offset revenue losses resulting from steep tax cuts.
STATE, LOCAL TAX DEDUCTION TARGETED
For average U.S. taxpayers, Trump proposed help by doubling the standard deductions for individuals who do not itemize; simplifying tax returns by reducing the number of tax brackets to three from seven; and providing unspecified tax relief for families with child and dependent care expenses.
He also called for repealing inheritance taxes on estates and the alternative minimum tax, both measures that would help a handful of wealthy taxpayers.
Trump's laundry list of tax cuts would reduce revenues for the U.S. government, which is already running a deficit and deeply in debt. He offered few proposals to offset those losses.
Democrats and fiscal-hawk Republicans will be concerned about how much Trump's proposals would expand the deficit. To minimize that, Republicans will rely heavily on "dynamic scoring," an economic modeling method that attempts to predict economic growth and new tax revenues resulting from tax cuts.
Mnuchin said the revenue losses would also be offset by killing many tax loopholes. He said at a briefing that Trump's plan would kill most tax deductions, except those for charitable giving, retirement savings and mortgage interest.
Cohn said at the briefing that one deduction on Trump's chopping block is for state and local tax payments, which is estimated to cost the U.S. Treasury $96 billion this year. Ending it would raise about that much in revenue.
Such a move would hurt high-tax states, which tend to vote Democratic, such as New York and California, where the state and local tax deduction is a major item, said some tax analysts.
Like all of Trump's proposals, this one would face intense scrutiny in Congress.
The No. 2 Democrat in the Senate, Dick Durbin, attacked the tax proposal and the fact Trump, a wealthy New York real estate developer, had declined to make public his personal tax returns.
"President Trump should release his own tax returns if he wants to have any credibility in a debate about America’s tax code," Durbin said. Mnuchin said on Wednesday that Trump did not intend to release his tax returns.
Trump team proposes ‘massive’ tax cuts in new reform plan
Trump administration officials outlined a sweeping tax reform plan Wednesday that calls for “massive” cuts for businesses and other changes that could yield big savings for American families.
The plan swiftly drew congressional criticism about the potential impact on the deficit. But administration officials voiced optimism that the proposal would spur economic growth, and said they'd reduce tax breaks elsewhere.
“We have a once-in-a-generation opportunity to do something really big,” top White House economic adviser Gary Cohn said. “Tax reform is long overdue.”
As the administration nears the end of its first 100 days, Cohn and Treasury Secretary Steve Mnuchin provided the contours of the administration’s long-awaited tax plan in a White House briefing with reporters.
The plan would, perhaps most significantly, slash the corporate tax rate from 35 percent to 15 percent. Small business owners could also benefit from that rate.
“The president is determined to unleash economic growth for businesses,” Mnuchin said.
INSIDE TRUMP'S TAX PLAN
The plan also would collapse the income tax system from seven to three brackets: 10 percent, 25 percent and 35 percent. The current top rate is 39.6 percent.
The administration is looking as well to double the standard deduction, or the amount of income individuals and families can report to the IRS tax-free.
The current standard deduction would rise from $6,300 to $12,600 for individuals under the proposal. For married couples filing jointly, it would rise from $12,600 to roughly $24,000.
Earlier in the day, Mnuchin called it the “biggest tax cut and the largest tax reform in the history of our country.”
The plan will immediately face questions on Capitol Hill over the impact on the federal budget and deficit, considering the tax cuts would presumably represent billions in lost revenue every year.
Senate Finance Committee Ranking Member Ron Wyden, D-Ore., issued a statement calling it an "unprincipled tax plan that will result in cuts for the one percent, conflicts for the President, crippling debt for America and crumbs for the working people."
But officials said Wednesday they plan to eliminate most tax breaks that benefit high-income taxpayers. At the same time, they said popular tax breaks like the mortgage interest and charitable deductions would be preserved.
With administration officials saying they want to get to work with Congress as soon as possible, a statement from Senate Majority Leader Mitch McConnell, R-Ky., House Speaker Paul Ryan, R-Wis., and other top GOP lawmakers said:
“The principles outlined by the Trump Administration today will serve as critical guideposts for Congress and the Administration as we work together to overhaul the American tax system and ensure middle-class families and job creators are better positioned for the 21st century economy."
The plan would also eliminate the estate tax that Republicans often deride as the 'death tax' and the 3.8 percent tax on investment income under ObamaCare.
Officials said an underlying goal is to simplify the tax system, noting that the increase in the standard deduction would mean far fewer households would have to itemize their deductions.
Mnuchin also called for a one-time tax on corporate money overseas, predicting it would bring trillions of dollars back to the U.S.
Trump administration outlines tax reform plan
The Trump administration is finally outlining its new proposal for tax reform, which leans heavily on tax cuts.
But so far the plan is pretty thin on details. And very little in the proposal is new, or wildly different from what the president already proposed during his campaign.
This, despite repeated statements from President Trump and Treasury Secretary Steven Mnuchin recently that the administration has been hard at work crafting a new plan that would be out "very soon."
A big promise that Trump and Mnuchin are sticking to: Trump's tax proposals will offer "the biggest tax cut and the largest tax reform in the history of this country," Mnuchin said Wednesday morning in an interview with The Hill.
For instance, in a bid to spur economic growth and make businesses more competitive internationally, Trump wants to slash the top tax rate for all businesses to 15%, far below the current top rates.
But the administration's tax outline still leaves many questions unanswered and will be met with a lot of skepticism, even though Republicans control Congress. In fact, some GOP aides suggest that the White House -- with its emphasis on tax cuts and few details on how they'd be paid for -- is not constructively contributing to a serious discussion of tax reform.
"It's not tax reform," one senior GOP aide told CNN. "Not even close."
Based on what Mnuchin said Wednesday and what White House officials have told CNN, here's what we know so far about the president's likely tax proposal.
Much lower business rates: Trump still wants to slash the top tax rate for all businesses to 15%, as he proposed during the campaign. That's well below the top rate of 35% for corporations today, although the real top rate they pay is less after tax breaks.
A drop to 15% would also be a huge drop from the 39.6% top rate paid by owners and shareholders of so-called pass-through businesses. Those run the gamut from mom-and-pop shops to law firms and hedge funds. In a pass-through business, the owners and shareholders report profits on their personal tax returns.
One-time tax on overseas profits: The president may again call for a low, one-time tax on the $2.6 trillion of profits that were earned overseas by U.S. multinational corporations and were technically never brought back to the United States.
The Tax Policy Center estimated last fall that such a provision could raise $148 billion over a decade, money that could be used to offset the cost of some of Trump's desired tax cuts.
Switch to a territorial tax system: Today, U.S. companies must pay tax on all their profits, regardless of where in the world those profits are earned.
Trump may join Republicans who want to switch to a territorial system for businesses. That would mean U.S. companies would only owe U.S. tax on what they earn in the United States.
No border adjustment tax as proposed: Trump is not expected to back a controversial provision known as the border adjustment tax that was proposed by House Republicans.
"We don't think it works in its current form, and we will have discussions with [House tax writers] about revisions," Mnuchin said.
A border adjustment tax would fundamentally alter how imports and exports are taxed. Under the House plan, companies could no longer deduct the cost of their imported goods, and sales of their exports would no longer be subject to U.S. tax.
Such a provision could raise more than $1 trillion over a decade, which the House GOP was counting on to help offset the cost of their proposed rate cuts.
Trump has been a proponent of a selective import tax -- and has suggested he might favor a "reciprocal" tax. But he has yet to explain what that means.
Lower individual income tax rates: The proposal is expected to call for reducing the number of tax brackets from seven to three for individuals.
During the campaign, he called for those rates to be 10% 20% and 25%. That's well below today's top rates of of 28%, 33% and 39.6%.
He later amended his plan, calling for somewhat higher rates to match what House Republicans have been calling for: 12%, 25% and 33%.
The White House still hasn't settled on which rates they'll propose, although Trump and Mnuchin have stressed his plan will offer tax relief for middle-income families.
Tax break for child care costs: It's not clear what specifically he will call for. But late in the campaign, Trump called for two tax breaks to help ease families' child care costs. One would let parents deduct the average cost of child care in their state, based on their child's age.
The other would give a tax break to anyone who sets aside up to $2,000 a year to cover costs associated with child care and elder care.
The contributions would be tax deductible, then grow tax free.
Tax and child care policy experts have said both breaks, as proposed, would disproportionately benefit wealthier families. And in the case of millions of low- and middle-income families, the breaks would raise their tax burden when combined with Trump's other proposals to eliminate head of household status, repeal personal exemptions and raise the lowest income tax rate to 12% from 10% currently.
Eliminate most deductions: Trump may align himself with House Republicans, by calling for the elimination of all deductions except those for mortgage interest and charitable contributions.
Originally he'd called for a cap on itemized deductions.
While the proposed tax cuts would please those helped by them, such as multinational corporations and wealthy taxpayers, Trump's package fell far short of the kind of comprehensive tax reform that both parties in Washington have sought for years.
As his milestone 100th day in office on Saturday nears, Trump has been scrambling to show progress on his agenda. The tax plan, though meager in detail, matched up closely with the promises he made during his victorious 2016 election campaign.
Investors, who had been awaiting tax-plan details for months, largely shrugged off the news, with many saying it was still short on specifics and faced a long road to enactment. “Wake me up when something actually gets signed into law,” said Greg McBride, chief financial analyst at Bankrate.com in West Palm Beach, Florida
Only Congress can make major tax law changes, and Democrats immediately attacked the Republican president's plan as fiscally irresponsible.
"President Trump’s tax plan is short on details and long on giveaways to big corporations and billionaires," said Nancy Pelosi, the top Democrat in the House of Representatives.
House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the top Republicans on the congressional tax-writing committees welcomed the Trump proposals, while leaving space for details to change as legislation evolves.
“The principles outlined by the Trump administration today will serve as critical guideposts" as Congress and the administration work on tax changes, they said in a statement.
U.S. stocks pared gains on Wednesday after the plan was unveiled. While Wall Street has been optimistic about the prospect of corporate tax cuts since Trump's election in November, the stocks rally has stalled lately because of a lack of clarity about Trump's policies and concern over his failure to push through a healthcare bill.
The benchmark Dow Jones industrial average of blue-chip stocks .DJI on Wednesday closed down one-tenth of 1 percent.
Some analysts said investors were aware of the long road ahead before any tax bill is passed.
"We have a pretty good idea that he (Trump) is targeting lower corporate taxes, lower individual taxes and a simplification of the process, but all that is in an ideal world," said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.
BUSINESS TAX RATE CUTS
In the plan, unveiled at the White House by Trump economic adviser Gary Cohn and Treasury Secretary Steve Mnuchin, Trump proposed cutting to 15 percent both the income tax rate paid by public corporations and that paid by "pass-through" businesses, including partnerships, S corporations and sole proprietorships.
The top corporate rate is now 35 percent, though few multinational companies pay it, thanks to loopholes that allow them to lower their effective tax rates. Despite this, corporations have pushed for a tax rate cut for many years, and Trump has obliged.
The top rate for pass-throughs, which account for most small businesses, is 39.6 percent, the same top rate paid by individuals. Unlike corporations, the profits of "pass-through" businesses flow directly onto their owners' tax returns.
In another concession to long-standing demands from corporate America, Trump called for bringing corporate profits being held offshore by multinationals into the country at a rate well below the current 35 percent rate now owed on "repatriated" earnings. He did not say what that rate would be, but said the administration was working with Congress on a low rate.
About $2.6 trillion in profits are being held tax-exempt abroad by U.S. multinationals under a rule that says they are only taxable if brought into the United States.
If enacted, the repatriation tax holiday would produce a one-time surge in government revenue. If it were dedicated to infrastructure spending, it could attract votes from Democrats.
The plan also urged adoption of a "territorial" corporate tax system that would largely exempt foreign profits of U.S.-based corporations from federal taxation.
Ryan expressed optimism about Trump's plan, even though it excluded a "border adjustment" tax on imports he has promoted. That idea was part of initiatives floated by House Republicans as a way to offset revenue losses resulting from steep tax cuts.
STATE, LOCAL TAX DEDUCTION TARGETED
For average U.S. taxpayers, Trump proposed help by doubling the standard deductions for individuals who do not itemize; simplifying tax returns by reducing the number of tax brackets to three from seven; and providing unspecified tax relief for families with child and dependent care expenses.
He also called for repealing inheritance taxes on estates and the alternative minimum tax, both measures that would help a handful of wealthy taxpayers.
Trump's laundry list of tax cuts would reduce revenues for the U.S. government, which is already running a deficit and deeply in debt. He offered few proposals to offset those losses.
Democrats and fiscal-hawk Republicans will be concerned about how much Trump's proposals would expand the deficit. To minimize that, Republicans will rely heavily on "dynamic scoring," an economic modeling method that attempts to predict economic growth and new tax revenues resulting from tax cuts.
Mnuchin said the revenue losses would also be offset by killing many tax loopholes. He said at a briefing that Trump's plan would kill most tax deductions, except those for charitable giving, retirement savings and mortgage interest.
Cohn said at the briefing that one deduction on Trump's chopping block is for state and local tax payments, which is estimated to cost the U.S. Treasury $96 billion this year. Ending it would raise about that much in revenue.
Such a move would hurt high-tax states, which tend to vote Democratic, such as New York and California, where the state and local tax deduction is a major item, said some tax analysts.
Like all of Trump's proposals, this one would face intense scrutiny in Congress.
The No. 2 Democrat in the Senate, Dick Durbin, attacked the tax proposal and the fact Trump, a wealthy New York real estate developer, had declined to make public his personal tax returns.
"President Trump should release his own tax returns if he wants to have any credibility in a debate about America’s tax code," Durbin said. Mnuchin said on Wednesday that Trump did not intend to release his tax returns.
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| Getty Images |
Trump team proposes ‘massive’ tax cuts in new reform plan
Trump administration officials outlined a sweeping tax reform plan Wednesday that calls for “massive” cuts for businesses and other changes that could yield big savings for American families.
The plan swiftly drew congressional criticism about the potential impact on the deficit. But administration officials voiced optimism that the proposal would spur economic growth, and said they'd reduce tax breaks elsewhere.
“We have a once-in-a-generation opportunity to do something really big,” top White House economic adviser Gary Cohn said. “Tax reform is long overdue.”
As the administration nears the end of its first 100 days, Cohn and Treasury Secretary Steve Mnuchin provided the contours of the administration’s long-awaited tax plan in a White House briefing with reporters.
The plan would, perhaps most significantly, slash the corporate tax rate from 35 percent to 15 percent. Small business owners could also benefit from that rate.
“The president is determined to unleash economic growth for businesses,” Mnuchin said.
INSIDE TRUMP'S TAX PLAN
The plan also would collapse the income tax system from seven to three brackets: 10 percent, 25 percent and 35 percent. The current top rate is 39.6 percent.
The administration is looking as well to double the standard deduction, or the amount of income individuals and families can report to the IRS tax-free.
The current standard deduction would rise from $6,300 to $12,600 for individuals under the proposal. For married couples filing jointly, it would rise from $12,600 to roughly $24,000.
Earlier in the day, Mnuchin called it the “biggest tax cut and the largest tax reform in the history of our country.”
The plan will immediately face questions on Capitol Hill over the impact on the federal budget and deficit, considering the tax cuts would presumably represent billions in lost revenue every year.
Senate Finance Committee Ranking Member Ron Wyden, D-Ore., issued a statement calling it an "unprincipled tax plan that will result in cuts for the one percent, conflicts for the President, crippling debt for America and crumbs for the working people."
But officials said Wednesday they plan to eliminate most tax breaks that benefit high-income taxpayers. At the same time, they said popular tax breaks like the mortgage interest and charitable deductions would be preserved.
With administration officials saying they want to get to work with Congress as soon as possible, a statement from Senate Majority Leader Mitch McConnell, R-Ky., House Speaker Paul Ryan, R-Wis., and other top GOP lawmakers said:
“The principles outlined by the Trump Administration today will serve as critical guideposts for Congress and the Administration as we work together to overhaul the American tax system and ensure middle-class families and job creators are better positioned for the 21st century economy."
The plan would also eliminate the estate tax that Republicans often deride as the 'death tax' and the 3.8 percent tax on investment income under ObamaCare.
Officials said an underlying goal is to simplify the tax system, noting that the increase in the standard deduction would mean far fewer households would have to itemize their deductions.
Mnuchin also called for a one-time tax on corporate money overseas, predicting it would bring trillions of dollars back to the U.S.
Trump administration outlines tax reform plan
The Trump administration is finally outlining its new proposal for tax reform, which leans heavily on tax cuts.
But so far the plan is pretty thin on details. And very little in the proposal is new, or wildly different from what the president already proposed during his campaign.
This, despite repeated statements from President Trump and Treasury Secretary Steven Mnuchin recently that the administration has been hard at work crafting a new plan that would be out "very soon."
A big promise that Trump and Mnuchin are sticking to: Trump's tax proposals will offer "the biggest tax cut and the largest tax reform in the history of this country," Mnuchin said Wednesday morning in an interview with The Hill.
For instance, in a bid to spur economic growth and make businesses more competitive internationally, Trump wants to slash the top tax rate for all businesses to 15%, far below the current top rates.
But the administration's tax outline still leaves many questions unanswered and will be met with a lot of skepticism, even though Republicans control Congress. In fact, some GOP aides suggest that the White House -- with its emphasis on tax cuts and few details on how they'd be paid for -- is not constructively contributing to a serious discussion of tax reform.
"It's not tax reform," one senior GOP aide told CNN. "Not even close."
Based on what Mnuchin said Wednesday and what White House officials have told CNN, here's what we know so far about the president's likely tax proposal.
Much lower business rates: Trump still wants to slash the top tax rate for all businesses to 15%, as he proposed during the campaign. That's well below the top rate of 35% for corporations today, although the real top rate they pay is less after tax breaks.
A drop to 15% would also be a huge drop from the 39.6% top rate paid by owners and shareholders of so-called pass-through businesses. Those run the gamut from mom-and-pop shops to law firms and hedge funds. In a pass-through business, the owners and shareholders report profits on their personal tax returns.
One-time tax on overseas profits: The president may again call for a low, one-time tax on the $2.6 trillion of profits that were earned overseas by U.S. multinational corporations and were technically never brought back to the United States.
The Tax Policy Center estimated last fall that such a provision could raise $148 billion over a decade, money that could be used to offset the cost of some of Trump's desired tax cuts.
Switch to a territorial tax system: Today, U.S. companies must pay tax on all their profits, regardless of where in the world those profits are earned.
Trump may join Republicans who want to switch to a territorial system for businesses. That would mean U.S. companies would only owe U.S. tax on what they earn in the United States.
No border adjustment tax as proposed: Trump is not expected to back a controversial provision known as the border adjustment tax that was proposed by House Republicans.
"We don't think it works in its current form, and we will have discussions with [House tax writers] about revisions," Mnuchin said.
A border adjustment tax would fundamentally alter how imports and exports are taxed. Under the House plan, companies could no longer deduct the cost of their imported goods, and sales of their exports would no longer be subject to U.S. tax.
Such a provision could raise more than $1 trillion over a decade, which the House GOP was counting on to help offset the cost of their proposed rate cuts.
Trump has been a proponent of a selective import tax -- and has suggested he might favor a "reciprocal" tax. But he has yet to explain what that means.
Lower individual income tax rates: The proposal is expected to call for reducing the number of tax brackets from seven to three for individuals.
During the campaign, he called for those rates to be 10% 20% and 25%. That's well below today's top rates of of 28%, 33% and 39.6%.
He later amended his plan, calling for somewhat higher rates to match what House Republicans have been calling for: 12%, 25% and 33%.
The White House still hasn't settled on which rates they'll propose, although Trump and Mnuchin have stressed his plan will offer tax relief for middle-income families.
Tax break for child care costs: It's not clear what specifically he will call for. But late in the campaign, Trump called for two tax breaks to help ease families' child care costs. One would let parents deduct the average cost of child care in their state, based on their child's age.
The other would give a tax break to anyone who sets aside up to $2,000 a year to cover costs associated with child care and elder care.
The contributions would be tax deductible, then grow tax free.
Tax and child care policy experts have said both breaks, as proposed, would disproportionately benefit wealthier families. And in the case of millions of low- and middle-income families, the breaks would raise their tax burden when combined with Trump's other proposals to eliminate head of household status, repeal personal exemptions and raise the lowest income tax rate to 12% from 10% currently.
Eliminate most deductions: Trump may align himself with House Republicans, by calling for the elimination of all deductions except those for mortgage interest and charitable contributions.
Originally he'd called for a cap on itemized deductions.
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