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Trump Taking New Approach on Tax Reform

Trump Taking New Approach on Tax Reform

White House wants to avoid the failure it endured with healthcare.

https://www.youtube.com/watch?v=zFrarC6IhU4

White House aides have told the Associated Press that President Donald Trump has decided to scrap the tax reform plan he campaigned on and start from scratch as a way to bring in more Republicans.

Trump and House Republicans already endured one defeat when many Congressional Republicans would not vote for their healthcare plan. The White House wants to take a more active role with tax reform so failure does not happen again.

From The White House

The aides explained to the AP that the legislation remains in the “early stages and the White House has kept much of it under wraps.” But one proposal includes “a drastic cut to the payroll tax, aimed at appealing to Democrats.” Trump would like to “cut tax rates sharply enough to improve the economic picture in depressed rural and industrial pockets of the country where many Trump voters live.” However, he has decided not to accept many “alternative ways for raising revenues, such as a carbon tax, top offset rates.” The Associated Press continued:

Other options are being shopped on Capitol Hill.

One circulating this past week would change the House Republican plan to eliminate much of the payroll tax and cut corporate tax rates. This would require a new dedicated funding source for Social Security.

The change, proposed by a GOP lobbyist with close ties to the Trump administration, would transform [Rep. Kevin] Brady’s plan on imports into something closer to a value-added tax by also eliminating the deduction of labor expenses. This would bring it in line with WTO rules and generate an additional $12 trillion over 10 years, according to budget estimates. Those additional revenues could then enable the end of the 12.4 percent payroll tax, split evenly between employers and employees, that funds Social Security, while keeping the health insurance payroll tax in place.

This approach would give a worker earning $60,000 a year an additional $3,720 in take-home pay, a possible win that lawmakers could highlight back in their districts even though it would involve changing the funding mechanism for Social Security, according to the lobbyist, who asked for anonymity to discuss the proposal without disrupting early negotiations.

The AP also reported that the administration has “shut out the economists who helped assemble one of his campaign’s tax overhaul plans.”

Like I said, the White House does not want a repeat of the healthcare fiasco. The House Republicans could not find enough votes to pass the healthcare bill, mainly from the Freedom Caucus. Last week, that caucus also warned the GOP leadership on tax reform. From Politico:

The head of the ultra-conservative group said Monday evening that lawmakers need to see the draft of a tax overhaul bill before it’s leaked to the media — which is what happened on the health care repeal bill. That measure failed in large part because it was written by leadership, and Freedom Caucus members felt they had no input.

“When a member sees the text for the first time in a leaked draft from Politico, therein is a problem,” said Rep. Mark Meadows (R-N.C.).

Trump’s Old Tax Plan

In September 2016, then-candidate Trump released his plan called “Tax Reform That Will Make America Great Again.” His goals in this plan included tax relief for the middle class, a simplified tax code, and reform that would not add to the debt or deficit.

Trump’s plan wanted to eliminate income tax for single people who made less than $25,000 and married couples who jointly earned $50,000. Trump suggested that all businesses, regardless of size, would not pay more than 15% of the business income in taxes. The plan also eliminated the death tax.

He also proposed four brackets instead of seven:

https://assets.donaldjtrump.com/trump-tax-reform.pdf

House Tax Reform Plan

I have reported numerous times about the tax reform plan that has floated around the House. Trump has not shown any commitment to a plan touted by Rep. Kevin Brady (R-TX), the chairman of the House Ways and Means Committee. Brady has suggested a border adjustment tax, which has received backlash from his colleagues in the House and the Senate. From The Wall Street Journal:

A border-adjusted tax would impose a levy on imports, including components used in manufacturing, and exempt exports altogether. Opposing it are retailers, car dealers, toy manufacturers, Koch Industries Inc., oil refiners and others that say it would drive up import costs and force them to raise prices.

Speaker Paul Ryan (R-WI) or Brady have not released a tax bill yet so we do not have exact details on how they plan to make this work. But the plan might add this tax “to the U.S. corporate income tax, which is expected to drop to 20% from 35%”

The GOP expects this idea “to raise roughly $1 trillion over a decade, and could offset the cost of cutting corporate-tax rates.” Since the country “imports more than it exports” we now have a trade deficit. With this approach, the country will raise “money by effectively taxing the trade deficit.”

The tax also will supposedly remove “the incentive to book profits outside the U.S. or to put a country’s legal address outside the U.S. for tax purposes.” The Wall Street Journal reported that this move “could remove significant complexity from the tax system.”

Timeframe

In March, the White House and Secretary of Treasury Steven Mnuchin wanted tax reform finished by August.

But even then, Senate Majority Leader Mitch McConnell (R-KY) said that most likely would not occur. From CNBC:

“I think finishing on tax reform will take longer. But we do have to finish the health-care debate, up or down, win or lose, before we go to taxes,” McConnell told Politico.

In an interview with The Financial Times, Trump appears to have dropped the timeframe:

Can you cut a deal on tax reform this year, and what would the terms be?

Well, I don’t want to talk about when and I don’t want to talk about timing. We will have a very massive and very strong tax reform. But I am not going to talk about when . . .

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Comments

legislation is too important to leave to the RINO hacks of the GOPe…

here’s a simple idea doe tax reform: cut the size of the federal government by 33%.

as for building the wall, slap a 25% tariff on all money transfers going to any country south of the US-Mexico border.

We’re still running on a continuing resolution. Tax cuts are great, tax cuts are fine, but throttling back spending has got to be a higher priority. Pick one of the eighteen or so budget sections, hammer out the FY17 spending for it (reduced or held stable at FY16 if possible), and pass it. Then do it seventeen more times. You know, the thing the House and Senate were supposed to have done about half a year ago, and the thing they’re *supposed* to have done for FY18 in less than six months.

Worse, budget cuts require lead time, and with half of the FY already over and spent, a 10% cut in this year’s budget actually turns into a 20% cut or worse with backdating, which leads to whiplash in the accounting, particularly since this CR had built-in increases.

    MattMusson in reply to georgfelis. | April 10, 2017 at 3:11 pm

    Because we have run on continuing resolution since Obama’s first year – every budget was last year plus 2 percent. And, guess what?

    He spent the Stimulus over and over again using that formula.

      inspectorudy in reply to MattMusson. | April 10, 2017 at 3:33 pm

      Hey Matt, have you seen the comments made by Mulvaney of OMB, about ALL agencies, prepare for HUGE budget cuts? We gotta start somewhere.

    Having been a budget director at a for profit and a non-profit organization, implementing a budget cut is painful but it gets done. I’ve alerted the police department in case of an adverse impact by an employee and I remember hearing about a suicide, hoping that it wasn’t one of our employees.

    Being a government employee does not mean that you get special benefits when you get laid off. Deal with it. We all had to deal with the impact on our lives.

    I went back to your comment to make sure I was not overreaching, but I am not. Why do we have to wait for government employees to adjust to a layoff. Most employees get that opportunity. If you are not needed, you are gone.

    Let’s bring business smarts into the business of government.

      It’s not the government employees, it’s the US Government. As a quick example, let’s say the new budget requires GSA to review all of its lease agreements in order to see if X% of them can be canceled in order to save money. That’s (google) 9,600+ properties with 370 million square feet nationwide, plus God only knows how many cars, trucks, specialty vehicles, etc… distributed out among a bazillion agencies, which requires GSA’s full-time work to keep up to date. Oh, and there’s a hiring freeze, so if a Realty specialist or twelve have quit/retired, they’re stuck understaffed with a giant lump of extra work.

      tl;dr Doing things takes effort. Changing the way things are done takes *extra* effort. It can be harder to shrink than to grow.

nordic_prince | April 10, 2017 at 1:42 pm

At the very least, reform the tax code so a family with an AGI under $50K isn’t slapped with an effective tax rate that is a ridiculous 35%.

And codify the “no penalty/no individual mandate” Obamacrap stuff.

How come these people only ask ‘How are we going to “pay for it”‘ when it comes to tax cuts? Why don’t they ask ‘How are Americans going to pay for it?” when they go to raise taxes? Makes no sense.

    Sanddog in reply to rdmdawg. | April 10, 2017 at 2:51 pm

    Government mentality considers every penny you earn as their property. They decide how much you’re allowed to keep and now, thanks to OCare, how you will spend it.

It’s not a tax cut if it’s revenue neutral.

Almost all taxes are parasitic on business activity.

Manufacturing, commerce, agriculture, etc. can always be increased by lowering taxes.

To revive the American manufacturing base, tax policy is by far the quickest and easiest way to do it. The downside is that it doesn’t give government anything to control—when Adam Smith controls your economy, obviously government can’t.

You can have either a competitive manufacturing sector, or you can have wild government spending. You can’t have both, mainly because government spending doesn’t put the money where manufacturing needs it. Spending does, however, all by itself show up as an increase in GDP, even though it doesn’t actually contribute anything to it. Deficit spending looks even better on the GDP graphs, as it counts money which doesn’t exist yet—which is all that credit is.

My two cents, not adjusted for inflation…

1. Why cut payroll taxes since they are for Social Security, Medicare and Federal Unemployment (for employers)? For self-employed, we get to pay for both parts of the SS/MC portion.

I would have loved put my 15% portion of these taxes into my own retirement/HSA accounts and then not rely on the government to give me something and have everyone complain that these are “entitlements”.

But, the only reason to cut these taxes would be to say that SS/MC are really entitlements, since people are no longer paying into the “system”. So, we can now cut those programs.

Bush spent a lot of time trying to correct this by trying to get a program where younger people could divert their tax to a self-directed retirement program. It used up his “political capital”.

The big problem is when to cut someone off the program? I’ll be pissed if my SS is reduced since I made decisions as to the amount of future SS and I adjusted spending to fund my pension account. Then, other spending decisions were made. Is someone going to punish me for saving? Sounds like it since I have “assets”.

I am only 64, but I have options for when to take Social Security (with a penalty or a reward) but I can’t have that option with health care? I may be one of those people who want greater health care options and will pay for it and wait until I am fully retired and need the safety net. I think all insurance companies will cut me off when I turn 65. I’ll find out soon and it may impact my choice of doctors and facilities.

2. Why wait? Can’t Congress do more than one thing at a time? And why don’t they describe their time away from DC better? Are they on vacation? Are they spending a week “fact-finding” overseas or at local townhall meetings? Or WHAT? Just tell us!

I remember that during Bush, his trips to Crawford were always described as vacations, even though Congress was usually off at the same time. Bush also stayed in DC during holidays so that Secret Service and staff would also be in town for the holidays. Bush also picked one spot and went there so the costs were less over time. And, it was never mentioned that a president is always on duty, always taking briefings, meetings, calls, etc.

Obama seemed to have vacations that took his staff out of town during critical times, required more setup since the sites were different and never went home to Chicago. And somehow, there were always government business happening.

If Mrs Obama had decided to keep their daughters in Chicago to complete a school year, it would have been ok. With Trump’s decision, it is just horrors!

It seems that Trump has set up two spots – NY and FL. And it seems that hosting foreign nationals (the wining,dining and golfing) at a resort has some favorable benefits.

Eventually, it will be interesting to see the overall cost/benefit analysis of Bush vs Obama vs Trump on overall costs, travel costs and results.

    MSO in reply to Liz. | April 10, 2017 at 4:01 pm

    “Why cut payroll taxes since they are for Social Security, Medicare and Federal Unemployment (for employers)?”

    Payroll taxes are the only taxes many people pay and those same people also reap the ‘earned’ income tax credit. There’s a lot of vote mining going on here.

    inspectorudy in reply to Liz. | April 10, 2017 at 6:32 pm

    I don’t believe that payroll taxes are the same as FICA withholdings. The two are separate. You can pay zero federal income tax and still have to pay the FICA taxes.

      Sanddog in reply to inspectorudy. | April 10, 2017 at 11:51 pm

      FICA = Payroll taxes. Federal taxes are separate.

      I think we have a failure to communicate here….

      As a managerial accountant – I considered the FICA (social security and medicare) to be payroll taxes. FUTA or federal unemployment tax is also a payroll tax.

      I had to withhold the FICA and match the amount as well as pay the FUTA. No questions asked – the government told me what to do.

      For federal & state withholding on income – the amount depends on what you declared – married or single, how many dependents, any extra withholding for whatever reasons. You told me what you wanted and I complied.

      So, if the government cuts payroll taxes, it is cutting the SS, MC, FUTA taxes. That cuts the bottom line for a business since I don’t have to match the expenses.

      Cut the income tax amount, yes, then I withhold less taxes to remit to the government but it does not impact the bottom line of the business.

This is armed robbery when you consider our debt. They get a guesstimated 7 TRILLION dollars this year. We should be swimming in oceans of extra money in people’s pockets to spend how they want to spend.

http://www.usgovernmentrevenue.com/revenue_brief.php?brief=current

In FY 2017, total US government revenue, federal, state, and local, is “guesstimated” to be $7.03 trillion. Federal revenue is budgeted at $3.64 trillion; state revenue is “guesstimated” at $2.00 trillion; local revenue is “guesstimated” at $1.39 trillion.

How’s this for a tax cut program: dump Ryan and McConnell so we can get to work on one.

inspectorudy | April 10, 2017 at 6:37 pm

JFK had it right when he went against his own party and the R’s as well when he said, “A rising tide lifts all boats”. Meaning that if the economy improved markedly the money pouring into the treasury would be enormous and make up for the revenue non-neutrality of the tax cuts. There has to be some form of faith in our country and everything cannot be done by the numbers to get a zero sum gain. If that were the case we would have been a third world country long ago.

When I lived in Singapore, the top income tax rate was 15%, the top capital gains tax was 0%, and there was no welfare. The safety net was your savings and your family. It has noe of the highest per Capita GDPs in the world while its neighbors are basked cases. Switzerland is maybe the most comparable Western country.

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