Washington, D.C.

Trump to call for slashing taxes, but leave details to Congress

White House attempting to navigate narrow political path
President Donald Trump boards Air Force One at Joint Andrews Base en route to New York on Sept. 26, 2017.
President Donald Trump boards Air Force One at Joint Andrews Base en route to New York on Sept. 26, 2017.

WASHINGTON — President Donald Trump will propose a sweeping rewrite of the federal tax code Wednesday, outlining a plan to reduce rates for corporations and individuals and eliminate some popular deductions, in a move that will probably set off a scramble among powerful groups eager to protect their tax breaks.

The proposal will call for slashing the corporate tax rate to 20 percent from 35 percent, doubling the standard deduction for individual taxpayers and slightly increasing the bottom tax rate to 12 percent from 10 percent, according to two officials briefed on the details of the blueprint.

The framework, which has been agreed upon by Republican leaders in the House and Senate, leaves most of the details to Congress but proposes a reduction in the current top individual rate to 35 percent from 39.6 percent, while leaving the door open for an unspecified, higher bracket for the wealthiest Americans. The plan would also, for the first time, create a 25 percent tax for “pass through” businesses, which account for the vast majority of business income in the United States and are currently taxed at individual rates.

Pulling the tax code levers inevitably creates winners and losers, but the scant details of the plan, including how it will be paid for and which deductions are on the chopping block, make it impossible to determine the distributional effects and whether it will actually help middle-class taxpayers and not the wealthiest Americans.

At a dinner with conservative and evangelical leaders Monday evening at the White House, Trump spoke extensively about his tax plan and said that referring to “tax reform” as “tax cuts” was a much better way of communicating the effort.

Trump also said that repatriation of taxes on corporate profits kept offshore would be part of the plan. He did not describe changes to carve-outs or deductions, according to a person in the room.

At one point, Trump said that getting the corporate rate down was the key to getting the economy to grow. The president said that he had grown tired of listening to foreign leaders, like India’s Narendra Modi, describe a gross domestic product increase close to 10 percent, while Trump had nothing comparable to show, according to the person, who asked for anonymity because it was a private dinner.

The White House is attempting to navigate a narrow political path on an issue that administration officials believe can reboot Trump’s presidency. It is an attempt to assuage the demand for lower taxes among wealthy party donors without being perceived by Trump’s working-class base as giving a windfall to the rich.

Trump promised after meeting with lawmakers Tuesday that “we will cut taxes tremendously for the middle class.”

He will make his pivot to overhauling the tax code official Wednesday during a speech in Indiana where he will unveil details of a plan that he has promised will be the biggest tax cut in history.

After the failure of Republicans to repeal the Affordable Care Act, passing tax legislation has become all the more crucial, and it is no accident that the Trump administration has chosen the Hoosier State, a reliably Republican part of the country. It is also the home to Vice President Mike Pence, its former governor, and it has a Democratic senator, Joe Donnelly, whose support Trump may need to get a tax bill through Congress.

For Republicans who have been scarred buy the experience of seeing tax cuts lead to fiscal shortfalls in states such as Kansas, South Carolina and Tennessee, Indiana represents a case study of where tax cuts worked.

“Our history of being a state that has reduced the size of government, specifically through Pence tax cuts in 2013, makes us an example of ‘here’s these tax cuts,’ and then seeing economic growth,” said Justin Stevens, the Indiana director of the conservative activist group Americans for Prosperity.

As governor, Pence signed legislation modestly reducing personal income taxes and taxes on companies. Coinciding with that, the state’s economy grew and unemployment declined. As of last year, Indiana’s gross domestic product ranked 16th in the United States and its unemployment rate last month was 3.5 percent, below the national level of 4.4 percent.

Trump will make the case Wednesday that this is the recipe for economic success nationally, but some economists in the state are not certain that the local strategy can be replicated on a national scale. Michael J. Hicks, an economics professor at Ball State University, said it was too soon to say if the Pence tax cuts actually stimulated the state economy.

“On the right, you’re going to hear that by cutting taxes you’re going to have huge new tax revenues,” Hicks said. “But there’s no analysis that finds that.”

Indiana has also had to find new revenues to fund infrastructure projects and rebuild crumbling roads. This year, the state approved a 10-cents-per-gallon gasoline tax — a concept that is anathema to conservative orthodoxy.

Finding money to pay for the Trump administration’s ambitious tax plan will be one of the bigger puzzles. Republicans say they are counting on a surge in economic growth and on the elimination of deductions to make up a fiscal shortfall that tax experts have suggested could amount to trillions of dollars.

Last week, members of the Senate Budget Committee agreed on a budget framework that would add to the federal deficit in order to pave the way for a $1.5 trillion tax cut over the next 10 years. The budget resolution still must pass both houses of Congress before work can begin in earnest on tax legislation, and some Republicans have already expressed reluctance.

Assessing the cost of the Republican tax framework will be difficult until more details are made available. Analyses of Trump’s previous plans and the House Republican blueprint from 2016 were estimated to reduce government revenues by between $3 trillion and $7 trillion over a decade.

After the failure to tackle health care with only Republican votes, Trump is expected to intensify his pitch to get Democrats on board with taxes.

Donnelly, who is seen as vulnerable in a state that voted overwhelmingly for Trump, is one of three senators who did not sign a letter from Democrats making demands that the tax plan not benefit the rich or add to the deficit. Trump will probably call him out directly Wednesday, as he did Sen. Heidi Heitkamp, D-N.D., during a recent rally.

During his meeting Tuesday with Republicans and Democrats from the House Ways and Means Committee, Trump also made a pitch for bipartisanship.

“It is time for both parties to come together and do what is right for the American people,” he said.

But garnering support from Democrats will not be easy.

“Trump asked for Democrats to jump on the caboose after the tax train has already left the station,” said Rep. Lloyd Doggett, D-Texas, who complained that lowering top tax rates and repealing the estate tax would be a boon for the wealthy. “I saw no Democrat ready to jump on board.”

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