Secretary of Treasury Steven Mnuchin and National Economic Council Director Gary Cohn spoke to the press at the White House today about President Donald Trump’s tax reform plan. Trump wants to slash the corporate tax rate to 15%, which I covered yesterday. But he also wants to place income taxes for us regular Americans into three brackets. From The Wall Street Journal:
“Clearly we have a unique opportunity to do something major here,” Mr. Cohn told a small group of reporters in the White House on Wednesday morning. “It’s our intention to create a huge tax cut and equally as important, a huge simplification of the tax system in America.”
America currently has seven income tax brackets for us citizens, but Trump wants to reduce that to only three: “10 percent, 25 percent, and 35 percent, based on someone’s income.”
Mnuchin and Cohn did not specify which incomes will hit the higher bracket “as they see that as part of ongoing discussions with Capitol Hill.”
A married couple’s deduction will rise to $24,000 from $12,600 while a single person will move to $12,600 from $6,300. WaPo reported that this move will “incentivize people not to itemize their tax returns and instead use the standard deduction.” This will help them to simplify “the process and potentially saving taxpayers thousands of dollars each year.”
More than likely the Republicans in Congress will welcome the plan’s suggestion to repeal the alternative-minimum tax and the estate tax (AMT). Cohn argued against the AMT because “we don’t think that people should have to do their taxes twice. Plus the AMT “unfairly prevented farmers and others from passing along their businesses to the next generation.”
The plan also includes eliminating deductions at the local level. WSJ continued:
Among the biggest changes is the repeal of the state and local tax deduction; the effect of that would be to shift the tax burden from low-tax states such as Texas and Florida to high-tax states such as New York and New Jersey. Eliminating the deduction could raise more than $1 trillion over a decade, and it brings Mr. Trump’s plan closer to a plan advanced in the House.“It’s not the federal government’s job to be subsidizing the states,” Mr. Mnuchin said. “We’re not looking to necessarily raise taxes on the top 1% but we want to get the federal government out of the business of what’s the state’s business.”
Cutting the corporate tax rate to 15% is by far the biggest part of Trump’s plan. From WaPo:
For businesses, Trump’s proposal would lower the corporate tax rate from 35 percent to 15 percent, and it would also allow smaller businesses, structured in such a way that they are affected by the individual tax rate, to also use the 15 percent threshold. There are millions of these businesses, known as “S Corporations,” and they are often small, family-owned firms.But they can also include large law firms and lobbying shops. Mnuchin said special protections would be put in place to ensure that the 15 percent rate isn’t taken advantage of by the wealthiest earners, though he didn’t say how the White House would do this.
Trump has proposed a “holiday,” which is a one-time tax. WaPo continued:
The White House is also proposing a one-time tax “holiday” to incentivize companies to bring several trillion dollars currently being held in other countries back into the United States. They didn’t specify what that tax rate would be, saying its currently part of negotiations on Capitol Hill, but they believed providing this incentive would bring money back for investment and hiring.“We expect that trillions of dollars will come back on shore and will be reinvested here in the United States, for capital goods and job creation,” Mnuchin said.This process is called “repatriation.” It’s controversial, because critics allege the money is brought back and then paid out in dividends to shareholders, not used for hiring. But Democrats and Republicans have both been open to the idea of a tax holiday. The Obama administration proposed using one to bring money back into the United States that could be used for new infrastructure projects, for example.
Mnuchin also made it clear that Trump will not support the border tax adjustment that the House GOP has included in its plan. WSJ reported:
The provision attempts to raise revenue by taxing imports, but not exports. Mr. Mnuchin said the administration wasn’t opposed to the provision in concept and that he liked aspects of it. But he said, “We don’t think it works in its current form.”Mr. Ryan hasn’t backed down on the border-adjustment idea, but he said Wednesday that he knows the proposal needs modifications in response to criticism from retailers and others. “We don’t want to have severe disruptions,” Mr. Ryan said.
Those others include Republicans in Congress. In February, I blogged about the pushback Ryan received when he showed a plan to his colleagues. From Politico:
The next day, Sen. Tom Cotton took to the Senate floor to slam Ryan’s so-called border adjustment tax, saying “some ideas are so stupid only an intellectual could believe them.”“Many other senators share these concerns and we most certainly will not ‘keep our powder dry,’” Cotton went on, without naming the speaker in his speech.—Senate Finance Chairman Orrin Hatch (R-Utah), sources said, has warned Trump and Ryan that border adjustment won’t likely have the support needed to clear the Senate.Hatch, in an interview after Ryan’s presentation, said the speaker “didn’t cover [the border adjustment proposal] as specifically as I would have liked.” And Sen. Roy Blunt of Missouri, the fifth-ranking GOP senator, said the Finance Committee will likely go a “different way.”Others were more unequivocal.“It’s beyond a complication. It’s a bad economic proposition,” said Sen. David Perdue (R-Ga.).
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