WASHINGTON (AFP) – The Trump administration Wednesday (April 26) unveiled plans to dramatically cut taxes for US businesses and individuals, slashing the corporate rate to 15 per cent, but the once-in-a-generation overhaul is headed for a tough fight in Congress.
As Donald Trump’s presidency nears the symbolic 100-day mark, the Republican is seeking to follow through on a flagship promise to overhaul the tax code to boost the US economy, businesses and families, including middle-class and working-class Americans.
“Under the Trump plan, we will have a massive tax cut for businesses and massive tax reform and simplification,” US Treasury Secretary Steven Mnuchin announced from the White House.
Corporate tax rates would be more than halved, from the current 35 per cent to 15 per cent, and tax brackets for individuals would be compressed from seven to just three – 10 per cent, 25 per cent and 35 per cent.
Gary Cohn, the president’s chief economic adviser who unveiled the plan along with Mnuchin, dubbed it “the most significant tax reform legislation since 1986, and one of the biggest tax cuts in American history.”
But the long-anticipated overhaul – whose details remained unclear beyond those headline measures – could face stiff opposition in Congress, including from some Republicans, with lawmakers sharply divided over the prospect of fueling already-rising deficits.
“This isn’t going to be easy. Doing big things never is,” Cohn admitted.
“We will be attacked from the left and we will be attacked from the right. But one thing is certain: I would never ever bet against this president.”
TAXING OVERSEAS PROFITS
Slashing taxes on income and business was a key part of Trump’s election platform.
Mnuchin declined to set a deadline for the reform passing Congress, but he said the administration was “determined to move this as fast as we can and get this done this year.”
Mnuchin and Cohn said there was fundamental agreement on the core principles of the plan, although particulars were still being worked out with lawmakers.
A key element is the repatriation of corporate profits from overseas.
“We will have a one-time tax on overseas profits which will bring back trillions of dollars that are offshore to be invested here in the United States,” Mnuchin said. That rate has yet to be finalised.
The tax plan’s impact on the deficit and debt will be key to winning backing on Capitol Hill.
House Speaker Paul Ryan hailed the reform as “progress,” even though Mnuchin signalled it would not include a tax on imports, something Ryan had lobbied for among fellow Republicans.
“It’s basically along exactly the same lines that we want to go,” he told reporters.
'EXPLODE THE DEFICIT'
But Democrats sounded an immediate warning to the White House.
“If the President’s plan is to give a massive tax break to the very wealthy in this country, a plan that will mostly benefit people and businesses like President Trump’s, that won’t pass muster with we Democrats,” Minority Leader Chuck Schumer said.
He also warned that a plan that dramatically shrinks tax revenues would “explode the deficit.” Analysts have said cutting the top marginal corporate tax rate by 20 percentage points could add a whopping US$2 trillion (S$2.8 trillion) or more to the deficit over a decade.
The administration has said its tax cuts will spur growth – its goal is 3 per cent – thus bringing in tax revenues to make up the difference, a calculation known as “dynamic scoring” which the Trump administration supports.
“The difference between 1.6 per cent, 1.8 per cent GDP and three percent is staggering,” Mnuchin said earlier. “It’s trillions of dollars of revenues. It’s tons of jobs.”
Economists, however, say this growth effect is not supported by evidence from prior tax cut efforts.
Douglas Holtz-Eakin, an economist and former head of the non-partisan Congressional Budget Office who served in previous Republican administrations, said dynamic scoring is wishful thinking.
“There has never been any single credible analysis of dynamic scoring that suggests that taxes pay for themselves,” Holtz-Eakin told AFP.
The tax cuts could be limited to a 10-year period, but Mnuchin said that would be less than ideal.
“If we have them for 10 years, that is better than nothing,” he said. “But we’d like to have permanency to it.”
Mnuchin said the lower corporate rate is aimed at helping small businesses, not the wealthy.
And he assured that rich Americans and businesses would be prevented from using loopholes to help them avoid paying their fair share.