(Bloomberg)—President Donald Trump and Republican leaders inched closer to releasing their tax framework this week, as details leaked to lobbyists suggested it would dramatically cut taxes for corporations and the wealthy, provide a measure of middle-class tax relief and punish some households in Democratic-leaning states like New York and New Jersey.
The White House said Trump will travel to Indiana Wednesday for a late-afternoon speech that’s expected to focus on the tax-overhaul effort. Early Monday morning, he tweeted that he has “important meetings taking place today. Big tax cuts & reform.” The only meetings listed on his schedule were a lunch with Vice President Mike Pence and dinner with “grassroots leaders” -- a group that will include several conservative organizations.
While 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 the rich. It sets the stage for a battle with Democrats and faces a litany of obstacles, including intra-party disputes about whether to pay for the tax breaks upfront or increase the deficit.
The emerging framework includes a proposal to cut the corporate tax rate to 20 percent from 35 percent -- a costly move in revenue terms that Trump and Republicans say is necessary to create job growth. But its provisions for individual taxes may hit closer to home for many Americans.
Three tax lobbyists familiar with those 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 -- both 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.
“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.”
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Trump emphasized the benefits for lower earners Sunday. 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. ” Actually, the lowest income-tax bracket in 2017 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.
Trump’s plan would double the standard deduction that benefits many middle-class Americans, making it the centerpiece of the tax relief Trump has promised them. It would also seek to pay for some of the tax cuts by ending the state and local tax deduction, which is used mostly by middle-to-high earners in high-tax states like California, New York and New Jersey. The tax break, which is worth more than $1 trillion over 10 years, is favored by representatives of influential industries, like real estate.
Attempts to end it may run into Republican opposition too.
“You have some members from higher-tax states who are concerned about the deductibility of state and local taxes,” said Representative David Schweikert of Arizona, a member of the tax-writing Ways and Means Committee and the conservative Freedom Caucus. “You have others who want to really aggressively lower rates.”
The framework that Trump and congressional Republicans plan to release Wednesday would form the starting point for the tax debate in the coming months, which comes as the administration seeks a legislative victory in 2017 after failing to repeal Obamacare or win full funding to build a wall on the southern border.
The president was scheduled to have dinner on Monday night with leaders of groups including The Heritage Foundation, Focus on the Family, the American Conservative Union and Americans for Prosperity, according to a White House news release.
“We’re excited,” House Ways and Means Committee Chairman Kevin Brady said Sunday night, after Republicans on his panel left a meeting to discuss their plans. He said the White House would determine the timetable for releasing more information, “but definitely this week.”
“I think this is going to move a lot faster than people think,” said Representative Vern Buchanan, a Florida Republican.
Ways and Means GOP members were meeting again Monday to discuss taxes.
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.”
The Utah Republican released a statement Monday saying: “As we continue to work toward the release of a unified framework that will serve as a base for the tax-writing committees in both chambers to draft legislation, what we are trying to achieve for the American people remains the same.”
GOP officials argue 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 argued 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 for 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.
Time is short, and many details have yet to be resolved. Republicans still haven’t decided how much a tax bill can add to the deficit, a decision they must make before beginning to advance a bill. They have also yet to come to agreement on what tax deductions and carve-outs to limit in order to simplify the code, raise revenues and -- as Trump has said he wants to do -- reduce the tax cut for the wealthiest Americans.
“I think the wealthy will be pretty much where they are” in terms of tax liabilities, Trump told reporters on Sept. 13.
“The whole objective here is to get the growth rate up to 3 percent-plus,” conservative economist Stephen Moore, who advised Trump’s presidential campaign on tax policy last year, told reporters on Friday. “Not because we want more money in the hands of millionaires.”
--With assistance from Jennifer Jacobs, Anna Edgerton and Erik Wasson.To contact the reporter on this story: Sahil Kapur in Washington at [email protected] To contact the editors responsible for this story: John Voskuhl at [email protected] Alexis Leondis
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