Updated 3:47 p.m.: Trump plan would cut taxes for companies and people
President Donald Trump proposed dramatic cuts in corporate and personal taxes Wednesday in an overhaul his administration asserts will spur national economic growth and bring jobs and prosperity to America's middle class. But his ambitious plan is alarming lawmakers who worry it will balloon federal deficits.
The plan would reduce investment and estate taxes, helping the wealthy. But administration officials said several other tax breaks that help well-to-do taxpayers would be eliminated and the plan would largely help the middle class.
The White House has yet to spell out how much of a hole the tax cuts could create in the federal budget, maintaining that the resulting economic growth would eliminate the risk of a soaring government deficit— if not actually cause the red ink to diminish.
The outlined changes to the tax code are the most concrete guidance so far on Trump's vision for spurring job growth and fulfilling his promise to help workers who have been left behind by an increasingly globalized economy.
"He understands that there are a lot people who work hard and feel like they're not getting ahead," said Gary Cohn, director of the White House National Economic Council. "I would never, ever bet against this president. He will get this done for the American people."
Still, the proposal leaves a series of open questions that could affect its impact on taxpayers and the economy.
The administration wants to reduce the number of tax brackets to three from seven, but it has yet to determine the income levels for people who would be put in each bracket. It also has yet to spell out how the plan would stop wealthier Americans from exploiting a lower corporate tax rate to reduce how much they pay. And the White House has downplayed the threat that the tax cuts could cause the deficit to surge, possibly eroding support for the plan among lawmakers in Trump's own Republican Party.
Cohn said Trump and his administration recognize they have to be "good stewards" of the federal budget. But the plan as it currently stands could cause the federal deficit to climb, unless it sparks a massive and lasting wave of growth that most economists say is unlikely.
Administration officials intend to hash out additional 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.
"We know this is difficult," Cohn said. "We know what we're asking for is a big bite."
As Cohn and Treasury Secretary Steven Mnuchin explained it in an interview, the plan would reduce the number of personal income tax brackets to three from seven: rates of 10 percent, 25 percent and 35 percent. It would double the standard deduction for married couples to $24,000, while keeping deductions for charitable giving and mortgage interest payments. The administration plans to provide tax relief for families with child care expenses, too, although the specifics have yet to be included.
On the other hand, the proposal would trim other deductions utilized by wealthier Americans. These would include deductions for state and local tax payments, a change that could alienate support from lawmakers in states such as California and New York with higher state taxes.
"It's not the federal government's job to be subsidizing the states," Mnuchin said.
The administration has emphasized that the plan is focused on simplifying the tax code and helping middle class Americans. The median U.S. household income is slightly above $50,000 annually.
Still, the proposal could reduce the tax burden for the wealthy by substantial amounts, including by eliminating the catch-all alternative minimum tax, which takes an additional bite out of high-income taxpayers.
It would also repeal the estate tax and the 3.8 percent tax on investment income from President Barack Obama's health care law. The proposal has yet to be vetted for its precise impact on top earners, as several details are still being determined.
On the corporate side, the top marginal tax rate would fall from 35 percent to 15 percent. Small businesses that account for their owners' personal incomes would see their top tax rate go from 39.6 percent to the proposed corporate tax rate of 15 percent. Mnuchin said the change for small business owners — a group that under the current definition could include doctors, lawyers and even major real estate companies — would be done in a way that would ensure wealthier Americans could not exploit the change to pay less than intentioned in taxes.
— Associated Press reporters Stephen Ohlemacher and Josh Boak
Previously: 4 questions about President Trump's tax plan
The White House is banging the drums that President Trump is doing something big again ahead of his 100th day in office — unveiling a tax "plan."
"This is going to be the biggest tax cut and the largest tax reform in the history of our country," Trump's Treasury Secretary Steve Mnuchin said at a panel Wednesday morning.
But what's coming out later Wednesday afternoon are guidelines, not legislation, akin to what would be revealed in a campaign. Though there's no sign Congress is ready to take this up immediately, Mnuchin made it sound urgent, saying the administration wants to move "as fast as we can."
The guidelines do set out the president's priorities, so let's take a peek:
1. First, what's in it?
A few things:
—15 percent business rate: The headline is a 15 percent business tax rate. That cuts the corporate tax rate down from 35 percent.
—Small businesses would benefit: It would include companies that don't pay through the corporate tax code, but for private businesses that pay through the income tax code (39.6 percent at the top). So that means small businesses would see a big cut.
—Trump himself stands to gain tens of millions: This plan would be a windfall for Trump. He pays taxes for his businesses through the income tax code, so his plan would slash his own tax liability potentially in half, saving himself tens of millions of dollars.
—Modest middle-class cuts: There would also be tax cuts across the board, including a modest one for those considered middle class.
—Fit on a postcard? Trump's Treasury secretary said this plan would seek to simplify the tax code by allowing people to fill out their taxes on a "large postcard." While people always like the idea of making it easier to fill out their taxes, they might not like what benefits they'd potentially lose. It could mean doing away with popular deductions like the home mortgage deduction, something that back in December Mnuchin said Trump's plan would scale back.
2. How is this paid for?
In one ambiguous word: growth.
"We fundamentally believe we can get to 3 percent sustained economic growth," Mnuchin said Wednesday morning.
(Trump actually promised 4 percent during the campaign.)
Experts predicted during the campaign that Trump's various iterations of his tax plan would blow a hole of trillions of dollars in the budget, even bigger than the Bush tax cuts.
That was true even using dynamic scoring, which takes growth into account.
The nonpartisan Tax Policy Center says that lowering the corporate tax rate from 35 percent to 15 percent would cost more than $2 trillion over a decade, for example.
--No BAT, man: Part of how House Speaker Paul Ryan wanted to pay for this (and it would still only be part) was through what's formally called a border-adjustment tax, or BAT. It's basically an import tax. But the Trump administration's early embrace of the BAT landed them in political hot water. Why? An import tax would mean a lot of things Americans buy at grocery and retail stores would go up.
That why it's being left out, because it's seen as too controversial right now. The last thing Trump wants is to have the narrative hijacked and turned into how he's proposing to increase the cost of everyone's avocados.
But, once again, it's another revenue source shut off.
3. If the BAT was Ryan's idea, what kind of buy-in does President Trump have from Republican leadership in Congress?
After the failed health care bill, the White House has been trying hard to show it is taking the lead on this one.
Trump wouldn't own Trumpcare (or was it Ryancare?), but this tax overhaul is all him. For now, Republican leaders are saying they're OK with that (at least publicly).
"We all agree on the benefits of tax reform and the place we want to land, and the question is how you reach that place," Ryan spokeswoman AshLee Strong said in a statement. "We continue to have productive discussions with the administration about all ideas on the table."
In other words, that's a nice way of saying this is at the infant stages. Congress still has to write and pass a bill. A tax overhaul hasn't been done in 30 years, and there are plenty of people on Capitol Hill who will want their hands on this.
4. Is there anything in this plan for Democrats?
There aren't a lot of details, but Politico and the Wall Street Journal report that what's unveiled Wednesday will include infrastructure and child-care tax credits that have been pushed by Trump's daughter, Ivanka Trump.
Those were priorities during the campaign, but they weren't attached to a tax plan. It's an attempt to paint Trump as bipartisan in trying to get Democrats on board since those are measures they'd likely have some measure of support for — although the details are always what matter.
But a tax overhaul, which again hasn't been done in 30 years, is hard enough without attaching a $1 trillion infrastructure plan and a $500 billion child-care tax credit.
Democrats certainly don't want to couple those programs with tax cuts they feel overwhelmingly benefit the wealthy. "You didn't hear much of anything about working families," Oregon Democrat Ron Wyden told Politico. "I'm certainly not going to support a tax proposal that gives crumbs to working families and cakes to the fortunate few."
Even Republicans are skeptical they can put them together. "It's probably going to end up being, in the end ... a Republican-only exercise," John Thune said in the same story.
So at this point, all of this appears to be another show for Trump's public relations ahead of the 100-day marker, one he's calling a "ridiculous standard," while at the same time launching a website touting all of his accomplishments.
There are many, many questions about the feasibility of this plan, and you can be almost guaranteed it will change quite a bit before there's any vote to make any of it law.
There's a long way to go.
— Domenico Montanaro/NPR
This story has been updated.