As usual, President Trump did a masterful job creating sense of drama in the buildup to his announcement today of his current tax agenda. But then he rolled out a plan that was little more than a rehash of the last of the many tax proposals he offered during his campaign—only with far less detail.
While Trump and his aides use the phrases “tax reform” and ‘tax cuts” interchangeably, no-one should be confused. This is not reform. It is, rather, an enormous tax cut. Treasury Secretary Steven Mnuchin called it "the biggest tax cut and the largest tax reform in the history of our country." He is almost certainly overstating the former and is flat wrong about the latter.
Trump aides described a plan that would add trillions of dollars to the national debt over the next decade. The one-page summary released by the White House includes all sorts of tax cuts, but never identifies a single tax preference Trump would repeal or curb. In a press briefing, Mnuchin and top White House aide Gary Cohn suggested that Trump would protect deductions for mortgage interest and charitable giving as well as tax incentives for retirement saving, but would target all others including the state and local deduction. But they did not say how.
Mystery Revenue-Raisers
Identifying those revenue-raisers is an unpleasant chore that the president will presumably leave to Republicans in Congress. For which none are thanking him.
The Tax Policy Center estimated that Trump’s final campaign plan, which he described in various ways in the summer and early fall of 2016, would reduce federal revenue by $6.2 trillion over the next decade. Including interest costs and the effects of the plan on the overall economy, it would boost the national debt by at least $7 trillion. By 2036, it would add $20 trillion to the debt.
While the White House insists that its plan would effectively pay for itself by boosting economic growth to 3 percent, no tax cut has ever been self-financing. TPC and its modeling partners at the University of Pennsylvania’s Wharton School found that Trump’s campaign plan effectively would generate no additional economic growth in the first decade and actually slow the economy over the following 10 years. The reason: The enormous deficits it would produce would lead to higher interest rates that would swamp the positive effects of the tax cuts themselves.
Business Tax Cuts
The outline the Administration described today repeated Trump’s campaign proposal to slash taxes on all businesses, including partnerships and other pass-throughs, to 15 percent. It also restated his plan to tax existing unrepatriated foreign income of US-based multinationals, though it did not propose a rate.
The White House summary was silent on the most controversial element of the tax blueprint proposed last June by House Republican leaders, the border adjustable tax. But the idea appears doomed. Even before the Trump plan was released, House Speaker Paul Ryan (R-WI) told a Washington conference, “We all agree that in its present form, it needs to be modified.”
The framework was also silent on the piece of the House GOP plan that would allow firms to immediately expense the cost of capital investment but remove the deduction for net interest costs.
For individuals, Trump would collapse the current seven rate system to three, though he revised his campaign rates of 12-25-33 percent to 10-25-35 percent. He’d repeal the Alternative Minimum Tax and the estate tax. He’d double the standard deduction, which roughly tracks his campaign proposal and which could simplify filing for millions of low- and moderate-income taxpayers. The White House also said Trump will propose a new child care tax subsidy, though it provided no details.
Rehashing a Campaign Plan
With that exception, and despite many gaps and a few other relatively modest changes, the plan largely mimics Trump’s campaign tax platform. While the President dramatically ordered his staff to draft a plan and “get it done” by today, it appears that they mostly cut-and-pasted his proposal from last summer on to White House stationary.
There appears to be little or no chance that Congress will enact the plan the White House described today. Even key Republicans, including Senate Finance Committee chair Orrin Hatch (R-UT) are skeptical at best about a business rate cut of the magnitude Trump is proposing. TPC estimated that just cutting the corporate rate and repealing the corporate alternative minimum tax would add $3 trillion to the national debt over 10 years. And the full cost of the plan—at twice the price-- will be hard, if not impossible, for Congress to swallow.
