The White House has provided a summary on US President Donald Trump’s ambitious tax plans. The overhaul includes significant tax reductions for both individuals and companies across the world’s largest economy.
The US administration on Wednesday unveiled a long-awaited plan for substantial tax cuts for businesses and private individuals.
Treasury Secretary Steven Mnuchin (pictured above) and National Economic Council Director Gary Cohn had earlier met with congressional leaders to iron out the finer details of the president’s blueprint.
A White House tax plan summary said Donald Trump was proposing reducing the number of US tax brackets from seven to three in a bid to make the system simpler and more transparent. The plan would cut the top income tax rate from 39.6 percent to 35 percent.
Trump also came out in favor doubling standard deduction Americans could claim on tax returns, while protecting home ownership and charitable giving tax deduction to a larger extent.
In addition, the president signaled he’d repeal a proposed alternative minimum tax, the summary pointed out.
Hefty corporate tax reductions eyed
The Trump administration signaled it would ask US lawmakers to cut the income tax rate paid by public corporations to 15 percent from 35 percent at present, and allowing multinationals to bring home overseas profits at a tax rate of 10 percent compared with 35 percent now.
Trump’s package also included a proposal to cut the top tax rate on “pass-through” businesses from 39.6 percent to 15 percent. Pass-through entities don’t pay the corporate rate. Instead, their profits are distributed directly to their owners, who then pay taxes on them as normal income. This applies to mainly small businesses but also to hedge funds, private equity firms, and real estate developers.
Trump’s announcement Wednesday didn’t provide many hints as to how to raise new revenue to offset losses incurred by the tax cuts.
According to estimates by the Tax Foundation – the leading US non-profit organization on taxes – cutting the corporate tax rate alone could reduce federal revenue by about $2.2 trillion (2.02 trillion euros) over the next decade.
That’s about $240 billion a year, which is almost as much as the $304 billion the government spent last year on income security programs such as food stamps, unemployment benefits and child nutrition.
However, Treasury Secretary Steven Mnuchin has repeatedly pledged that the administration’s tax plan will pay for itself. He has emphasized that the proposal will generate economic growth, which he argues should in turn lead to higher tax revenue from rising wages, higher employment and strong business sales.
“You could have as high as a $2 trillion difference in revenues depending on what you think is going to be the growth function,” Mnuchin said at a speech in Washington last week, adding that the plan “will pay for itself with growth.”
Tax Foundation estimated that this would need to see a sustained 0.9-percentage-point increase in the US growth rate over 10 years, which the think tank doesn’t see as realistic.
The Trump has been eager to craft a tax package that can win support in Congress, but they are likely to trigger formidable procedural problems in the Senate.
To get its tax changes through without relying on Democratic Party support, Republicans will have to use a process called reconciliation. One element of this is the requirement that the tax reform does not add to the deficit beyond a 10-year window, implying the tax rate cut would have to be only temporary and assuming it is not offset by other revenue-raising measures.
Moreover, the White House plan could clash in some ways with a broader tax plan shaped months ago by House Republicans, and complicating the consensus-building within the GOP.
uhe, hg/mds (Reuters, AFP, dpa)