U.S. President Donald Trump and top Republicans in Congress are about to show how aggressively they intend to cut the corporate tax rate, while trying to avoid the appearance of favoring the wealthy.
U.S. President Donald Trump and top Republicans in Congress are about to show how aggressively they intend to cut the corporate tax rate, while trying to avoid the appearance of favoring the wealthy. The “Big Six” team of Republican tax policy makers is expected to release a plan on Wednesday targeting tax cuts for businesses, but offering few clues about how to replace reduced federal revenues, said lobbyists and congressional sources. Under pressure from corporate America, the team is expected to call for a corporate income tax target rate possibly within a range of 18-23 percent, down from the current rate of 35 percent.
But the Big Six, which includes top Trump aides and congressional Republican leaders, is expected to refrain from cutting the top individual tax rate of 39.6 percent, in a risky step that many Republicans in the House of Representatives could find hard to swallow. “They’re not going to cut the highest income tax rate. They’re not,” predicted Stephen Moore, a fellow at the conservative Heritage Foundation think tank. Moore helped write Trump’s campaign tax plan.
Overhauling the tax code was a key pledge for Trump in his 2016 presidential campaign. But after eight months in office, he has made only limited progress. Washington has achieved no major tax overhaul since 1986. Trump portrays lower corporate taxes as a boon to workers, saying they would lead to more jobs and higher salaries. A rate cut on corporate profits could also be used to benefit shareholders and to offer up more executive bonuses, however. “The details leaking out of the Big Six meetings paint a clear picture of an unprecedented tax giveaway for the most fortunate and biggest corporations,” Senator Ron Wyden, top Democrat on the Senate Finance Committee, said this week.
The Big Six — Treasury Secretary Steven Mnuchin, Trump economic adviser Gary Cohn, Senate Republican leader Mitch McConnell, House of Representatives Speaker Paul Ryan and two tax committee chairmen — have been working on their plan for months. But they are still undecided on key issues, including whether to let businesses write off new investments immediately; how to lower tax rates for small businesses; and whether to cut middle-class taxes simply by doubling the standard deduction for individuals and families, according to lobbyists. Resolving such issues will help determine how aggressively Republicans can cut corporate taxes.
Lobbyists said they do not expect the Big Six to offer many details about the tax loopholes and deductions that could be eliminated to help pay for tax cuts. “Our expectation is that it will be a bold transformative tax reform. That would mean a dramatic corporate rate cut, an aggressive stripping out of set-asides and special interest carve-outs and simplification,” said Tim Phillips, president of Americans for Prosperity, a political group backed by billionaire conservatives Charles and David Koch.
White House spokeswoman Natalie Strom declined to comment on the blueprint. “We have always said that tax reform will include lowering rates, closing loopholes and broadening the base by ending special interest tax breaks. Those priorities will be reflected in the plan,” she said. The Big Six will likely address the estimated $2.6 trillion in U.S. corporate profits held overseas by requiring companies to bring the money home at rates of 3.5 percent for reinvested profits and 8.75 percent for on cash and equivalents, lobbyists said. To offset lost revenue, the Trump administration plans to forecast a flood of new tax revenue in coming years, based on aggressive assumptions of tax-fueled economic expansion.
But Senate Republicans have shown signs of moving away from such “dynamic” scoring of any tax legislation impact. Two senators, including a prominent fiscal hawk, agreed this week to a “static” score that could allow tax reform to lose up to $1.5 trillion over the next decade. Senate Republicans also are likely to avoid budget baseline changes to generate savings for tax reform on paper. That could well mean the Big Six plan would balloon the federal budget deficit. “Without those, the price goes up. There’s no other way to look at it,” said John Gimigliano, a former House Ways and Means Committee tax counsel who leads federal legislative and regulatory services at KPMG LLP.