Ahead of Trump’s much anticipated tax announcement on Wednesday, the WSJ reports that the president has ordered his (mostly ex-Goldman) White House aides to accelerate efforts to create a tax plan “slashing the corporate rate to 15% and prioritizing cuts in tax rates over an attempt to not increase the deficit” which means that without an offsetting source of revenue, Trump is about to unleash the debt spigots, a proposal which will face fierce pushback from conservatives as it is nothing more than a continuation of the status quo under the Obama administration, and may well be DOA.
The WSJ adds that during an Oval Office meeting last week, “Trump told staff he wants a massive tax cut to sell to the American people” and that it was “less important to him if the plan loses revenue.”
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Hoping to add a sense of dramatic urgency – after all his 100 day deadline hits on Saturday – Trump told his team to “get it done,” in time to release a plan by Wednesday.
Translation: Trump’s massive tax cut will be funded by debt, and as a result, will be at best temporary as it will be in breach of the revenue constraints in the reconciliation process; at worst it will never happen as it will now require Democrat votes.
Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn are scheduled to meet Tuesday to discuss Mr. Trump’s tax proposals with Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, Senate Finance Chairman Orrin Hatch and House Ways and Means Chairman Kevin Brady of Texas. The meeting comes in advance of a Wednesday announcement by Mr. Trump about his principles for tax policy.
While Trump promised to cut corporate rates to 15% from 35%, with the BAT now out of the picture, there aren’t enough business tax breaks that could be repealed to offset the fiscal cost, meaning such a move would increase budget deficits, the WSJ notes. Roughly, each percentage-point cut in the tax rate lowers federal revenue by $100 billion over a decade, so a 20-point cut would cost the government $2 trillion, according to the congressional Joint Committee on Taxation.
And, as we noted above, the fact that Trump has flip-flopped on revenue offsets may have also doomed Trump’s tax plan: as the WSJ points out:
“any plan that adds to budget deficits would be difficult to advance on Capitol Hill, for both procedural and partisan reasons. The president’s fellow Republicans, who control both the House and Senate, are aiming to pass a tax bill through a process known as reconciliation, which means they wouldn’t need votes from Democrats. However, bills passed under reconciliation can’t increase deficits beyond the typical 10-year time frame against which tax and spending policies are projected.”
Meanwhile, The House Republican tax proposal calls for a 20% corporate tax rate, with the cost covered by including a border-adjustment feature that taxes imports and exempts exports. Trump’s White House has sent mixed messages about whether it would support the border-adjustment plan.
Asked Monday if the president’s tax plan would be revenue-neutral, meaning it wouldn’t add to the debt, Mr. Mnuchin told reporters that it would “pay for itself with economic growth.” By that he meant that the administration expects to be able to project faster growth due to tax cuts, which would in turn increase revenue and avert the risk of bigger budget deficits. Many economists doubt whether economic growth can ramp up on a sustained basis without a big pickup in productivity and labor-force growth, and it is uncertain the tax-policy changes would do that.
“They will lose a boatload of revenue that we can’t afford to lose and far more than this team will offset by closing loopholes,” said Jared Bernstein, who was an economic adviser to former Vice President Joe Biden. Cutting marginal tax rates for businesses could generate some economic growth, he said, but not nearly enough to pay for itself with increased revenue.
“These promises about all kinds of growth and investment that are going to be triggered by these tax cuts never appear, and the empirical historical record is clear on that,” Mr. Bernstein said.
In other words, that makes it “difficult if not impossible for Republicans to pass a deficit-financed tax cut that doesn’t expire without getting Democratic votes in the Senate. Democrats are against large tax cuts for corporations, especially at a time when Mr. Trump is proposing cuts to government spending programs they prioritize, like housing, arts and the environment.”
It also means that as Compass Point’s Isaac Boltansky wrote earlier today, Trump’s release of tax details on Wednesday will likely deliver only “a vague generalization” of his goals in coming tax reform effort; and, if the WSJ is correct in laying out Trump’s uber-ambitious plan, the generalizations will also be impossible to be implemented, effectively killing most if not all hope of tax reform for the foreseeable future as the bickering between Democrats and Republicans will be effectively insurmountable.
If Joe Biden’s economic adviser says it’s bad then it must be. Bah. I generally disbelieve Republic promises of “dynamic analyses” that purport to show that a cut in tax rates will pay for itself in greater growth. It worked when Kennedy cut taxes or Reagan cut the top rate from 70% to 28%, but it has less effect when tax rates are relatively low. Cutting the corporate rate would work much better though, because the US has one of the highest corporate tax rates and big businesses can effectively declare their profits in the lowest tax nation.
Ryan’s border adjustment tax doesn’t just tax imports. It’s a national sales tax that also applies to domestically produced products when sold in the US. It exempts only US-produced products that are exported.
details and links please–i’d bet not 1 in 10 republican voters know this,much less the average voter–
Not that I favor corporate tax or any other tax but, I’d like to know how many corporations pay federal tax at all, seems like all the tax codes favor corporations anyway, so Trump can lower the corporate tax rate to 1% or raise it to 99%, at this point what difference does it make.
Doesn’t G.E. pay tax lawyers millions a year to figure out ways to not only avoid paying corporate taxes, but garner tax refunds?
It’s the middle class that takes it up the ass.
“Corporations” pay the majority of taxes or you could say pay none of them. It is the cost of doing business, so it is part of the equation when pricing ones product. Why should I care about adding more immoral debt? WTF income taxes and property taxes are immoral anyway and should be abolished. I do not “owe” one dollar of what I earn to anyone. I only pay taxes because of the consequences if I do not.
Every bit of the cost of doing business is figured into every proposal I write. Who pays all my insurance bills? You do. It is in the proposal. Who pays my taxes? You do, it is in my proposal. Who pays my employees salaries? You do….. Who pays my salary? You do.
The difference between me and the gov’t? You and I enter into a voluntary contract and when we do you are agreeing to pay for all those things in return for the goods and services I provide. There is no voluntary contract entered into with the state, only coercion.
You own nothing. There is no such thing as private property rights (your home or your money). The gov’t is nothing more than a gang of thugs requiring you to pay “protection” fees and if you don’t pay they rough you up a little with “penalties & interest” and a special room at the local federal penitentiary.
I never entered into a “voluntary” contract with the United States gov’t or any state gov’t to allow them to enjoy any of my earnings. Therefore “taxes” are theft.
My, what a liberal web the wall street fishwrapper weaves. Now refusing to cut taxes is a “conservative” position. I don’t like to pay taxes. Tax cuts? FUCK YEAH. Big part of the reason I voted for Trump.
A small tax cut-hold the line on spending-massive regulatory reform-
it’ll never happen–
Frankly, I don’t give a damn if a tax is ‘revenue neutral’ or breaks the whole damn budget. Shut it all down. Period. That is like asking if you prefer that Vinny come to your shop to extort money from you using his fist instead of baseball bat so he may not damage your merchandise as much when he comes to collect the protection money.
Until I see a proposal to tie ‘taxes’ to productivity IN GOVERNMENT, and simultaneously remove the Federal Reserves power to inflate my money to worthlessness, I don’t care what they have to say. It’s all shuffling deck chairs on the Titanic.