Trump, GOP prepare deep corporate tax cut

Plan said to also trim top earners’ rate

In this Sept. 22, 2017, photo President Donald Trump speaks at a campaign rally in Huntsville, Ala.
In this Sept. 22, 2017, photo President Donald Trump speaks at a campaign rally in Huntsville, Ala.

WASHINGTON -- The White House and congressional Republicans are finalizing a tax plan that would slash the corporate rate while reducing the levy for the top-earning Americans, sources familiar with the proposal say.

President Donald Trump is said to be ready to roll out the policy proposal this week.

The plan to rewrite the nation's tax code would be the first major overhaul in three decades. It also is expected to eliminate or reduce some tax breaks and deductions.

While some details of the framework may be in flux, a list of specifics that's circulating among Washington lobbyists breaks from the president's recent rhetoric against tax cuts for high earners. It sets the stage for a battle with Democrats and faces a series of obstacles, including intraparty disputes about whether to pay for the tax breaks upfront or increase the deficit.

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Three tax lobbyists familiar with the changes said they include cutting the top individual tax rate to 35 percent and creating a 25 percent rate for certain "pass-through" business owners -- down from the current top rate of 39.6 percent. Such changes would cut taxes substantially for the top 1 percent of earners, said Kyle Pomerleau, an expert with the Tax Foundation, a right-leaning Washington policy group.

An analysis by Washington's Tax Policy Center last year found that half of the business income earned by all pass-through businesses, such as partnerships and limited liability companies, goes to those making $693,000 or more annually -- placing them well within the top 1 percent of taxpayers by income. Such businesses are not subject to income tax; instead, their owners are taxed individually on the income that is passed through to them.

"I don't have a good way to thread the needle between the president's promises and where they are," said Republican economist Doug Holtz-Eakin. There's a reason why individual income-tax cuts would tend to favor higher earners, he said: "The income tax is not a broad-based revenue-raiser anymore; it's a surtax on high-income people."

The top tax for corporations would be reduced to about 20 percent from the current 35 percent, said people familiar with the plan. It will seek to simplify the tax system by reducing the number of income tax brackets from seven to three.

Trump has said he wanted to see a 15 percent rate for corporations, but House Speaker Paul Ryan has called that impractically low and said it risks adding to the soaring $20 trillion national debt.

The White House and congressional leaders planned an all-out blitz later this week to build support for the plan, which is now Trump's top legislative priority, as the GOP has struggled to repeal and replace the Patient Protection and Affordable Care Act. The political stakes are high for Trump, who has promised 3 percent economic growth and expanded jobs through tax cuts.

Trump on Sunday emphasized the benefits for lower earners. Asked to confirm that the top individual rate will be 35 percent, the president sidestepped the question and focused on the bottom rate -- which affects the lowest earners.

"We think we're going to bring the individual rate to 10 percent or 12 percent, much lower than it is now," he told reporters. "This is a plan for the middle class and for companies so they can bring back jobs." The lowest income-tax bracket in 2017 actually applies a 10 percent rate to taxable income of $9,325 or less. After that, a 15 percent rate applies to income up to $37,950.

Republicans control Congress, but they are split on some core tax issues. They're in agreement on wanting to cut tax rates and simplify the tax system, but they're divided over whether to add to the government's ballooning debt with tax cuts. The GOP also is at odds over eliminating the federal deduction for state and local taxes.

That deduction is prominently in the sights of the plan's architects. Treasury Secretary Steven Mnuchin said the administration wants to eliminate or reduce it because the federal government shouldn't be subsidizing states and wealthy households. Nearly 44 million people claimed the deduction for state and local taxes in 2014, according to the most recent IRS tally, especially in the high-tax, high-income states of California, Connecticut, New Jersey and New York.

The plan being assembled lays out "pro-growth tax reform," Rep. Kevin Brady, R-Texas, head of the tax-writing House Ways and Means Committee, told reporters on Capitol Hill. It will fix a tax code that is "so complex, so costly and so unfair," he said.

Details will be filled in later by the committee, and legislation will be put forward after the House and Senate enact their budget frameworks, Brady said.

Brady's counterpart in the Senate -- Orrin Hatch, chairman of the Senate Finance Committee -- has raised questions about just how unified a tax framework will be. During a committee hearing earlier this month, Hatch cautioned that the panel wouldn't merely provide a "rubber stamp."

Republicans are divided over the potential elimination of some of the deductions, underscoring the difficulty of overhauling the tax code even with GOP control of the House and Senate.

House Republicans plan to hold a Wednesday retreat at Fort McNair, Md., a few miles from the White House, to discuss the proposal, with briefings led by Brady and Rep. Peter Roskam, R-Ill.

Trump plans to address the plan in a speech the same day at the Indiana State Fairgrounds in Indianapolis. Cabinet members and other top administration officials are fanning out on Thursday to talk about the benefits of overhauling the tax system.

"The tax reform I think is very critical, and he knows that," said Christopher Ruddy, CEO of NewsMax and a longtime Trump friend. "And that's why he'll push really hard for it. But he's got something big going for him here. The Republicans need to run on something next year, and it's tax cuts. So even if they don't want to be particularly helpful to him, I think they're going to give him this. If he has the tax cuts signed, I think it's going to be very helpful for him."

Touching with his conservative base, Trump planned to discuss the tax plan at dinner Monday night with representatives of several conservative, religious and anti-abortion groups.

GOP officials argue that the tax overhaul is crucial for boosting economic growth, while Democrats are gearing up to paint it as a giveaway to the wealthy.

"Democrats have strongly and firmly stood for the position that not one penny of tax cuts should go to the top 1 percent," Senate Minority Leader Chuck Schumer said in a statement Sunday.

A White House official said that increasing the standard deduction would expand the number of Americans who don't pay any net income taxes, and that a low individual rate would encourage Americans at the bottom of the economic ladder to climb up.

The framework is also expected to eliminate the estate tax, three people familiar with the discussions said. That tax applies to estates worth at least $5.49 million per tax filer. Many Republicans want to end it.

One immediate purpose of the framework is to secure House GOP approval of a budget resolution to unlock the Senate's procedure for passing a tax bill without Democratic support. Leaders of the conservative House Freedom Caucus have declined to support a budget before members see details of a tax plan; GOP leaders are hoping they'll be satisfied.

Republican senators on opposing sides of the deficit debate have tentatively agreed on a plan for $1.5 trillion in tax cuts. That would add substantially to the debt and would enable deeper cuts to tax rates than would be allowed if Republicans followed through on earlier promises that their tax overhaul wouldn't add to the budget deficit. That would mark an about-face for top congressional Republicans like Ryan and Senate Majority Leader Mitch McConnell, who had for months promised it wouldn't add to the deficit.

Information for this article was contributed by Marcy Gordon and Ken Thomas of The Associated Press and by Sahil Kapur, Jennifer Jacobs, Anna Edgerton and Erik Wasson of Bloomberg News.

A Section on 09/26/2017

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