Dismissing concerns about ballooning federal deficits, President Donald Trump on Wednesday proposed dramatic tax cuts for U.S. businesses and individuals – outlining an overhaul his administration promises would spur economic growth and simplify America’s tangle of tax rules.
His proposal, a one-page sketch short on detail, would reduce the top corporate tax rate by 20 percentage points – to 15 percent from 35 percent – and allow owners of private businesses to claim the new lower rate for their take-home pay. It would whittle the number of tax brackets for individuals from seven to three, lower the top tax rate from 39.6 percent to 35 percent and double the standard amount taxpayers could deduct.
It would eliminate the estate tax and reduce taxes on investments, typically paid by the rich. It would further reduce the tax burden for the wealthy by eliminating the catch-all alternative minimum tax, which takes an additional bite out of high-income Americans.
More lower-income Americans would pay no tax at all, and there would be relief – still undefined – for families with child care expenses.
It also does not fully embrace tax proposals backed by Republican House Speaker Paul Ryan, an essential ally if the president is to make good on his promise to deliver a tax overhaul that creates growth and brings jobs to struggling parts of the country.
Still, “I would never, ever bet against this president. He will get this done for the American people,” said Gary Cohn, director of the White House National Economic Council. “He understands that there are a lot people who work hard and feel like they’re not getting ahead.”
Administration officials intend to complete details with members of the House and Senate in the coming weeks for what would be the first massive rewrite of the U.S. tax code since 1986.
The possibility of a deficit increase, unacceptable to some Republicans, means that Trump would need to attract Democratic support to make the overhaul permanent.
Senate Democrats, including Sen. Martin Heinrich of New Mexico, questioned Trump’s priorities in the proposed tax cuts.
Heinrich called the proposal “a wish list for big corporations and his wealthy friends.”
“Democrats and Republicans all agree our tax code should be reformed, but this certainly doesn’t pass the test,” said Heinrich, the ranking Democrat on the House-Senate Joint Economic Committee. “This proves that President Trump has no intention of reaching across the aisle to build consensus on reforms both parties can support.”
“This is an unprincipled tax plan that will result in cuts for the 1 percent, conflicts for the president, crippling debt for America and crumbs for the working people,” said Sen. Ron Wyden, or Oregon, ranking Democrat on the Finance Committee.
But Rep. Steve Pearce, the New Mexico congressional delegation’s lone Republican, said Trump’s plan would help New Mexicans.
“New Mexicans deserve a tax system that allows them to keep more of their hard-earned money,” Pearce said. “The plan announced today by the Trump administration is a great first step towards achieving these goals.”
The president’s proposal marks a rehash of an economic theory popularized in the 1980s. Trump officials essentially argue that benefits from the tax cuts will trickle down from higher profits for companies into stronger pay raises for workers and greater consumer spending. This expected surge in growth, in theory, would be enough to keep the federal budget deficit from shooting upward.
Some economists agree, but most budget experts say it’s unlikely.
“Unfortunately, it seems the administration is using economic growth like magic beans – the cheap solution to all our problems,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. “But there is no golden goose at the top of the tax cut beanstalk, just mountains of debt.”
Trump’s plan resembles aspects of the tax ideas he campaigned on last year. The right-leaning Tax Foundation estimated that even after accounting for growth, the Trump campaign plan would put a $2.6 trillion to $3.9 trillion hole in the budget over 10 years.
“We know this is difficult,” Cohn said. “We know what we’re asking for is a big bite.”
Despite the details provided Wednesday, the proposal leaves significant open questions that could affect its impact on taxpayers and the economy.
The administration has not decided the incomes at which the new personal tax rates – 10 percent, 25 percent and 35 percent – would apply, meaning that some Americans’ taxes might increase if they get bumped into a higher bracket. It also has yet to spell out how the plan would stop wealthier Americans from exploiting a lower corporate rate to reduce their own taxes.
The Trump proposal would double the standard deduction for married couples to more than $24,000, while keeping deductions for charitable giving and mortgage interest payments.
On the other hand, it would trim other deductions, including for state and local tax payments, a change that could alienate lawmakers in states such as California and New York with high state taxes.
“It’s not the federal government’s job to be subsidizing the states,” Treasury Secretary Steve Mnuchin said.
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