5 things to know about Trump’s tax plan


Secretary of the Treasury Steven Mnuchin and National Economic Director Gary Cohn speak about President Donald Trump’s new tax reform plan, at the White House, on April 26. | Getty

Though it broke little new ground, President Donald Trump’s tax reform outline underscores just how arduous a task overhauling the tax code could be for Republicans this year. Treasury Secretary Steven Mnuchin and Gary Cohn, the director of the National Economic Council, handed out a one-page overview of the plan Wednesday — and told reporters that the administration had to fill in many of the key details that make overhauling the tax code so difficult that it’s happened only a handful of times over the last century.

Here are five things to know about the newest version of Trump’s tax plan:

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What’s in it?

Trump released a couple tax plans during the campaign, with the most recent coming around seven months ago. Many of the details released Wednesday haven’t changed since that September plan, including proposals to cut the top tax rate for all businesses to 15 percent and to repeal the estate tax and alternative minimum tax.

But some changes have been made, including a couple major ones. Trump now proposes a so-called territorial tax system that shields offshore corporate income from U.S. taxation, a key priority for corporate America. The top tax rate on individuals is also slightly higher than in Trump’s last plan, moving to 35 percent from 33 percent, while tax incentives like the deduction for state and local taxes would get the ax. And the Trump team seeks to double the standard deduction claimed by most taxpayers, which is still smaller than what the campaign sought in September.

How’s it different from what Congress wants?

House Speaker Paul Ryan (R-Wis.) and the House’s top tax writer, Kevin Brady (R-Texas), have taken to saying that their tax blueprint is about 80 percent in sync with the White House’s. The two sides disagree on the border-adjusted tax — applied to imports but not exports — that is central to the House blueprint, the House plan has a 20 percent rate for businesses and a 33 percent top rate for individuals, and Trump wants to go after an Obamacare tax on investment income for higher earners that GOP leaders would like to tackle in an Affordable Care Act replacement.

But there is quite a bit of overlap between the two plans, including a territorial system and a repeal of the estate tax and the AMT. Ryan, Brady, Senate Majority Leader Mitch McConnell (R-Ky.) and Senate Finance Chairman Orrin Hatch released a statement that said Wednesday’s details “will serve as critical guideposts for Congress and the administration as we work together to overhaul the American tax system.”

How much does it cost?

Short answer: Impossible to say right now. Both the conservative Tax Foundation and the Urban-Brookings Tax Policy Center projected that Trump’s last campaign plan would cost in the neighborhood of $6 trillion over a decade.

Still, there are projections for individual pieces of Trump’s earlier plan that got carried over to Wednesday — for instance, the Tax Policy Center projects that a 15 percent rate for both corporations and businesses that pay taxes through their owners’ returns would cost a combined $3.4 trillion over 10 years. But Roberton Williams of the Tax Policy Center said that the changes to the plan’s standard deduction and to which tax breaks would be scrapped meant the group’s previous analysis was “no longer relevant.”

Nonetheless, Williams said it’s a fair bet that the Trump plan would pile up more debt, even though there are a lot of details that need to be filled in. And that could cause problems for Republicans’ ability to pass the plan, at least on a permanent basis. Democrats aren’t expected to back a GOP tax overhaul, meaning that Republicans will likely have to rely on budget rules that allow them to pass fiscal measures with 51 votes in the Senate. But because of how those rules are structured, the GOP would also find it very difficult to pass anything that raises deficits outside a 10-year budget window — something which might eventually force the Trump administration to tone down their ambitions.

Mnuchin reiterated Wednesday the administration’s assertion that the tax plan would essentially pay for itself, though there are doubts that Congress’ official scorekeeper would see it that way.

Who does it help?

Corporations have for years said they are hamstrung by America’s top 35 percent corporate rate, which is among the highest in the industrialized world. The businesses that pay through individual side of the tax code, known as pass-throughs, have said for just as long that they want to pay the same rate as corporations. Both are likely to be thrilled with a 15 percent rate.

And while the Trump administration only calls for a modest reduction in the top rate for individuals, many top earners — lawyers, doctors and hedge fund executives, for instance — would reap the benefit of the 15 percent rate for all businesses. That low rate would also likely help Trump and his family, as would potentially some other proposals in the president’s plan. Trump would scrap the AMT, which his leaked 2005 tax return shows cost him $31 million that year.

The Trump administration has said that cutting taxes for the middle-class is one of its major goals, and Mnuchin vowed Wednesday that the average family would see their tax burden go down. But liberal fiscal analysts have long said that they believe Trump’s plans would raise taxes for many working-class families, largely by ending personal deductions, and that Wednesday’s update did little to change their thinking.

What holes have to be filled?

Lots and lots — and these are the kinds of details that can easily trip up a tax reform effort. Mnuchin and Cohn said Wednesday that the administration was still working through a lot of top-level details, including at which income levels to set their three individual tax rates and whether independent contractors would pay the 15 percent business rate.

But there’s a lot more where that came from. On the territorial tax proposal, the administration would need to write rules to keep companies from stashing income offshore and away from the Treasury’s reach. The House plan used the border adjustment for that purpose, but Mnuchin said Wednesday that provision needs improvements and the administration has yet to publicly offer any alternatives.

Rules would also need to be written to keep taxpayers from gaming the 15 percent business rate, but Mnuchin would only say Wednesday that “what this is not going to be is a loophole for rich people.”

Read more : http://www.politico.com/story/2017/04/26/trump-tax-plan-237653

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