President Trump’s administration has finally rolled out a blueprint for tax reform. Treasury Secretary Steven Mnuchin is selling the proposal as “the biggest tax cut and largest tax reform in the history of this country.”
Whether that claim is accurate remains to be seen as many of the specifics on the Trump plan were left out of the press conference. The administration reiterated, however, that tax reform to encourage economic growth remains a top priority for the president.
“President Trump has made tax reform a priority, and the Republican Congress wants to get it done.” Senior Trump adviser (and liberal Democrat) Gary Cohn said, speaking at a press conference Wednesday.
Candidate Trump proposed lowering individual tax rates by consolidating the number of tax brackets from seven to three. Trump proposed those rates to be 10%, 20%, and 25%. He later amended those rates to 12%, 25% and 33%, but the principle of his proposal was massive tax cuts for individuals.
What President Trump is now proposing is a three-bracket system with rates of 10%, 25%, and 35%. Married couples will have a “zero tax rate” on the first $24,000 they earn. The administration has not yet decided the income levels assigned to each bracket, though the promise is for a net tax cut for the lower and middle class.
Without knowledge of the range of the income tax brackets, it is difficult to estimate the impact these new tax rates will have.
“We are in constant dialogue with the House and the Senate,” Cohn clarified when pressed for more specifics. “We have outlines. We have a broad brush view of where they’re gonna be.”
Trump's tax reform:
--individual rates 10, 25 and 35%
--childcare tax credit
--15% business rate
-repeal death tax
— Jennifer Jacobs (@JenniferJJacobs) April 26, 2017
Other details from the plan that leaked prior to the press conference were confirmed.
Obtained: Overview of WH tax reform plan (as of yesterday). pic.twitter.com/Hjkwmx6Dxr
— Jim Acosta (@Acosta) April 26, 2017
Several taxes are eliminated. The death tax and the alternative minimum tax are gone under Trump’s plan. Additionally, the 3.8% Obamacare tax on dividends and capital gains is repealed.
The tax plan includes a child care tax credit, though the details of the credit were not discussed.
Notably, President Trump’s plan calls for the elimination of most individual income tax deductions.
“We are going to eliminate most of the tax breaks that are mainly benefits to high income individuals,” Cohn said. Indeed, the Trump plan eliminates every single itemized deduction for individuals except for mortgage interest and charitable contributions. “This isn’t going to be easy,” Cohn admitted, noting this proposal may not be immune to criticism. “We will be attacked from the Left, and we will be attacked from the Right.”
“We think that will be sweeping reform,” Mnuchin later added.
The effect of eliminating individual income tax deductions on high income earners while cutting the top rate from 39.6% to 35% may actually have the effect of a net tax increase for higher income earners. Yet, again, it is impossible to know for sure because the administration did not relay the specifics of their proposal.
On the business side, the president wants to slash business tax rates from 35% to 15%. Small business owners will be eligible for the 15% business rate. The object is growth.
“The president’s objective is creating economic growth,” Mnuchin said. “We believe we can get back to 3% or higher GDP [growth] that is sustainable in this country.”
Additionally, there will be a one-time tax on overseas profits — a repatriation tax. President Trump has previously discussed cutting the repatriation tax on offshore business earnings from the current 35 percent to 10 percent. Secretary Mnuchin said the specifics of the repatriation tax rate are still under discussion.
The bottom line is the president’s tax plan will result in big tax cuts for businesses that will stimulate business and job growth. With the elimination of individual tax deductions, however, the effectiveness of tax cuts on individual income may be mitigated, and in some cases individual filers with high incomes may see a net increase in the tax they pay.
Ultimately, without further answers to questions on the specific details of the plan, people who want to know if their taxes are going to go up or down are left in the dark.