U.S. President Donald Trump on Wednesday proposed the biggest tax overhaul in three decades – a plan that would slash rates on businesses and the wealthy – but it faces an uphill battle in Congress with his own party divided and Democrats hostile.
The plan offered scant details about how to pay for the cuts without dramatically driving up federal deficits. It was forged during months of high-level talks among Trump’s aides and top Republicans in Congress.
The proposal would lower corporate income tax rates, cut taxes for “pass-through” businesses, reduce the top income tax rate for individual Americans and scrap some widely used tax breaks including one that benefits people in high-tax states dominated by Democrats.
Trump said wealthy Americans would not benefit under his tax plan and that he would not negotiate on the Republicans’ tax framework proposal to lower the corporate tax rate to 20 percent.
“No I don’t benefit. I think there’s very little benefit for people of wealth,” Trump told reporters at the White House.
Big business embraced the plan, while Democrats voiced opposition. Republicans have produced no major legislative successes since Trump took office in January even though they control the White House and both chambers of Congress.
The tax plan was outlined the day after the Republicans’ top legislative priority, an overhaul of the U.S. healthcare system, collapsed in the Senate, while another key item on Trump’s wish list, infrastructure spending, has yet to materialize.
A comprehensive tax overhaul has eluded lawmakers for decades. The last one was passed in 1986.
Trump has said the tax overhaul would provide tax relief to middle-class Americans, and the White House said that under the proposal typical middle-class families would have less of their income subject to federal income tax.
The plan foresees a 20-percent corporate income tax rate, down from 35 percent now. Trump had initially proposed a 15-percent rate. Companies in the United States pay high taxes by global standards and they have been seeking a tax cut for years, even though many of them pay much less than the headline rate due to loopholes and tax breaks.
“I think it’s a big step forward,” Senator Pat Toomey, a prominent Republican on the Senate Finance Committee, told reporters. “This is very, very constructive, that the relevant parties are on the same page.”
Trump has appealed to Democrats to support the plan, although they were not consulted in drafting it.
Republicans hold a thin 52-48 majority in the Senate and may need some Democrats on board to win passage. But Democrats said the plan would expand the federal deficit in order to deliver tax cuts to wealthy Americans rather than the middle-class families that Trump and Republicans say they are trying to help.
“If this framework is all about the middle class, then Trump Tower is middle-class housing. It violates Trump’s tax pledge that the rich would not gain at all under his plan,” said Senator Ron Wyden, the top Democrat on the tax-writing Senate Finance Committee.
Analysts have warned that huge tax cuts would balloon the federal deficit and debt if the economic growth projected by Republicans fails to materialize amid rising interest rates.
The White House and congressional Republicans did not give an estimate on how much the tax plan would cost. The nonprofit Tax Foundation policy group previously estimated it would reduce federal revenue by up to $5.9 trillion in the next decade.
BIG BUSINESS ON BOARD
Trump was hitting the road on Wednesday to sell the plan with an appearance in Indianapolis.
His proposal was embraced by the U.S. Chamber of Commerce business lobbying group and an organization called the RATE Coalition representing large American companies including AT&T Inc, FedEx Corp, Home Depot Inc, General Dynamics Corp and Walmart Stores Inc.
The coalition, which said it represents firms employing over 30 million workers in all 50 states, said America’s corporate tax rate is the highest in the industrialized world and “out of step with global reality.”
Wall Street opened higher on Wednesday partly on rising expectations of a December interest rate hike, with a focus also on Trump’s tax plan. Stocks later pared gains.
The tax framework would establish a 25-percent rate for business income from pass-throughs.
The Brookings Institution think tank estimates that 95 percent of all U.S. businesses are “pass-throughs,” which tend to be small, private enterprises.
Under current tax law, business profits are “passed through” to owners as personal income, which is often taxed at the top 39.6 percent individual income tax rate.While it would lower the top individual rate from to 35 percent from 39.6 percent, the Trump plan would roughly double the standard deduction, a set amount of income exempt from taxation, for all taxpayers.
While it would lower the top individual rate from to 35 percent from 39.6 percent, the Trump plan would roughly double the standard deduction, a set amount of income exempt from taxation, for all taxpayers.
The proposal aims to consolidate the current seven tax brackets into three brackets of 12 percent, 25 percent and 35 percent.
Republicans proposed eliminating some existing tax deductions, though they retain deductions for mortgage interest payments and charitable deductions. They proposed scrapping the deduction for the amount a taxpayer pays in state and local taxes, which could hurt people in high-tax states including California and New York that tend to vote Democratic.
Republicans argue that the tax cuts would be offset by new revenues raised from eliminating tax loopholes and would drive more robust U.S. economic growth, predictions that critics are sure to question.
At a time of slow but steady U.S. economic expansion, the Trump tax-cut package has some support in Congress, even among Republican fiscal hawks who only a short time ago routinely opposed deficit-financed fiscal proposals.
Trump and his Republican allies made completing a tax overhaul in 2017 a top promise of the 2016 election campaign and are under mounting pressure to finish the job since the failure of the latest Republican effort to overturn the Obamacare healthcare law. (Reporting by David Morgan and Richard Cowan; Additional reporting by Susan Heavey, Doinca Chiacu and Amanda Becker; Editing by Peter Cooney and Alistair Bell)