The White House on Wednesday presented a sweeping plan to lower tax rates for individuals and businesses, saying it would create the biggest tax cut in American history.
The plan would cut the top personal income tax rate from 39.6 percent to 35 percent and double the standard deduction for taxpayers while eliminating all credits and deductions aside from those for mortgage interest and charitable giving.
On the business side, the plan would lower the tax rate for corporations and most small businesses to 15 percent, more than halving the current 35 percent corporate rate. It would also eliminate the estate tax and the alternative minimum tax.
President Trump didn’t attend the briefing where members of his economic team rolled out his plan, but he praised it at a signing ceremony later in the day.
“It’s a great plan,” Trump said. “It’s going to put people back to work.”
The outline presented by the White House was short on details but represented a significant milestone in the tax reform debate, with the administration laying out broad parameters for what it wants to see in legislation.
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Support from the White House will be critical if Republicans are going to achieve their goal of overhauling the tax code for the first time since 1986.
“In my view, [the plan] advances tax reform by recommitting the White House to a broad vision,” said former Rep. Phil English (R-Pa.), who is co-chairman of the government relations practice at Arent Fox.
The proposal released Wednesday carries over several elements of Trump’s campaign tax plan while sharing some similarities with the blueprint that House Republicans released last year.
Both proposals call for eliminating all individual deductions, except those for mortgage interest and charitable giving, along with moving to a “territorial” tax system that doesn’t cover American companies’ foreign earnings.
During his campaign, Trump adopted the House GOP blueprint’s idea of collapsing the seven tax rates for individuals into three: at 12 percent, 25 percent and 33 percent. Trump tweaked those rates slightly in the latest plan, instead floating three tax brackets of 10 percent, 25 percent and 35 percent.
Trump’s tax reform principles also did not discuss some of the provisions in the House GOP plan designed to pay for lowering tax rates. Notably, the White House did not endorse a border-adjustment proposal to tax imports and exempt exports.
Retailers, who have been leading the charge against the border-adjustment proposal, were encouraged by the omission.
“The president has been clear that among his goals are simplifying the tax code and providing relief to middle-income Americans. The border adjustable tax does neither,” said Brian Dodge, a spokesman for the Retail Industry Leaders Association. “Instead, it is outrageously complex and will force American families to pay more for the things they need.”
But the White House made clear it wasn’t ruling out border adjustment entirely. Treasury Secretary Steven Mnuchin said Wednesday morning that the administration doesn’t support the proposal “in its current form” but continues to have discussions with lawmakers about modifications.
Speaker Paul Ryan (R-Wis.) said Wednesday prior to the plan’s release that lawmakers agree that the border-adjustment proposal “needs to be modified” so that there aren’t large disruptions for retailers.
He also said there is broad consensus that tax reform should lead to “the most internationally competitive tax system there is.”
Republican lawmakers, business groups and prominent conservatives generally praised the proposal, arguing that it would provide relief for individuals, boost the economy and make businesses more competitive.
“In calling for competitive tax rates and moving toward a modern international tax system, the President’s proposal reflects the most important elements that must belong to any pro-growth reform,” Mark A. Weinberger, global chairman and CEO of Ernst & Young and chairman of the Business Roundtable Tax and Fiscal Policy Committee, said in a statement.
Larry Kudlow, a CNBC senior contributor who served as an informal economic adviser to the Trump campaign, said, “The corporate stuff looks great to me.”
Democrats blasted Trump’s plan, calling it a giveaway to the wealthy that would expand the deficit. They expressed disappointment that the plan did not include infrastructure spending.
“President Trump’s tax proposal does not do nearly enough for working families and small businesses in this country,” Rep. Richard Neal (Mass.), the top Democrat on the Ways and Means Committee, said in a statement.
Democrats also seized on the release of the plan to call on Trump to release his tax returns, something Mnuchin said the president has “no intention” of doing.
“Instead of focusing on lowering taxes for teachers, nurses and cops, Trump appears to be piling on the conflicts-of-interest by ensuring he himself will receive an elite giveaway,” Senate Finance Committee ranking member Ron Wyden (D-Ore.) said. “Yet another reason why it’s critical the American people see his tax returns.”
One aspect of Trump’s plan that is certain to prove controversial is the proposal to eliminate the state and local tax deduction.
The deduction elimination has been a part of a number of recent GOP tax plans, including the House GOP plan, and would raise a significant amount of revenue.
But it could also be difficult for Republican lawmakers in high-tax states to vote for a bill that repeals the deduction. Additionally, eliminating the deduction could upset state and local government officials and make it harder to get some Democrats on board.
The administration is now planning to hold listening sessions to get feedback on their plan as they work with lawmakers to flesh it out. The House Ways and Means Committee is expected to hold tax reform hearings as the panel continues to develop legislation based on the House GOP blueprint.
Marc Gerson, vice chairman of the tax department at Miller & Chevalier and a former tax counsel to the Ways and Means Committee, said that there would be a “delaying effect” until the administration releases more details and it becomes clearer how in line the White House is with the House GOP plan.
Tax experts said that it’s important for Trump to personally sell the proposal in the future if he wants tax reform to succeed.
“The only way you get tax reform done is with the enthusiastic support of the president of the United States,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center.
Updated at 8:02 p.m.