President
Donald Trump unveiled a one-page plan on Wednesday proposing deep U.S. tax
cuts, many for businesses, that would make the federal deficit balloon if
enacted,
drawing a cautious welcome from fiscal conservatives and financial
markets.
While the
proposed tax cuts would please those helped by them, such as multinational
corporations and wealthy taxpayers, Trump's package fell far short of the kind
of comprehensive tax reform that both parties in Washington have sought for
years.
As his
milestone 100th day in office on Saturday nears, Trump has been scrambling to
show progress on his agenda. The tax plan, though meager in detail, matched up
closely with the promises he made during his victorious 2016 election campaign.
Investors, who
had been awaiting tax-plan details for months, largely shrugged off the news,
with many saying it was still short on specifics and faced a long road to
enactment. “Wake me up when something actually gets signed into law,” said Greg
McBride, chief financial analyst at Bankrate.com in West Palm Beach, Florida
Only Congress
can make major tax law changes, and Democrats immediately attacked the
Republican president's plan as fiscally irresponsible.
"President
Trump’s tax plan is short on details and long on giveaways to big corporations
and billionaires," said Nancy Pelosi, the top Democrat in the House of
Representatives.
House Speaker
Paul Ryan, Senate Majority Leader Mitch McConnell and the top Republicans on
the congressional tax-writing committees welcomed the Trump proposals, while
leaving space for details to change as legislation evolves.
“The
principles outlined by the Trump administration today will serve as critical
guideposts" as Congress and the administration work on tax changes, they
said in a statement.
U.S. stocks
pared gains on Wednesday after the plan was unveiled. While Wall Street has
been optimistic about the prospect of corporate tax cuts since Trump's election
in November, the stocks rally has stalled lately because of a lack of clarity
about Trump's policies and concern over his failure to push through a
healthcare bill.
The benchmark
Dow Jones industrial average of blue-chip stocks .DJI on Wednesday closed down
one-tenth of 1 percent.
Some analysts
said investors were aware of the long road ahead before any tax bill is passed.
"We have
a pretty good idea that he (Trump) is targeting lower corporate taxes, lower
individual taxes and a simplification of the process, but all that is in an
ideal world," said Andre Bakhos, managing director at Janlyn Capital in
Bernardsville, New Jersey.
BUSINESS TAX
RATE CUTS
In the plan,
unveiled at the White House by Trump economic adviser Gary Cohn and Treasury
Secretary Steve Mnuchin, Trump proposed cutting to 15 percent both the income
tax rate paid by public corporations and that paid by "pass-through"
businesses, including partnerships, S corporations and sole proprietorships.
The top
corporate rate is now 35 percent, though few multinational companies pay it,
thanks to loopholes that allow them to lower their effective tax rates. Despite
this, corporations have pushed for a tax rate cut for many years, and Trump has
obliged.
The top rate
for pass-throughs, which account for most small businesses, is 39.6 percent,
the same top rate paid by individuals. Unlike corporations, the profits of
"pass-through" businesses flow directly onto their owners' tax
returns.
In another
concession to long-standing demands from corporate America, Trump called for
bringing corporate profits being held offshore by multinationals into the
country at a rate well below the current 35 percent rate now owed on
"repatriated" earnings. He did not say what that rate would be, but
said the administration was working with Congress on a low rate.
About $2.6
trillion in profits are being held tax-exempt abroad by U.S. multinationals
under a rule that says they are only taxable if brought into the United States.
If enacted,
the repatriation tax holiday would produce a one-time surge in government
revenue. If it were dedicated to infrastructure spending, it could attract
votes from Democrats.
The plan also
urged adoption of a "territorial" corporate tax system that would
largely exempt foreign profits of U.S.-based corporations from federal
taxation.
Ryan expressed
optimism about Trump's plan, even though it excluded a "border
adjustment" tax on imports he has promoted. That idea was part of
initiatives floated by House Republicans as a way to offset revenue losses
resulting from steep tax cuts.
STATE, LOCAL
TAX DEDUCTION TARGETED
For average
U.S. taxpayers, Trump proposed help by doubling the standard deductions for
individuals who do not itemize; simplifying tax returns by reducing the number
of tax brackets to three from seven; and providing unspecified tax relief for
families with child and dependent care expenses.
He also called
for repealing inheritance taxes on estates and the alternative minimum tax,
both measures that would help a handful of wealthy taxpayers.
Trump's
laundry list of tax cuts would reduce revenues for the U.S. government, which
is already running a deficit and deeply in debt. He offered few proposals to
offset those losses.
Democrats and
fiscal-hawk Republicans will be concerned about how much Trump's proposals
would expand the deficit. To minimize that, Republicans will rely heavily on
"dynamic scoring," an economic modeling method that attempts to
predict economic growth and new tax revenues resulting from tax cuts.
Mnuchin said
the revenue losses would also be offset by killing many tax loopholes. He said
at a briefing that Trump's plan would kill most tax deductions, except those
for charitable giving, retirement savings and mortgage interest.
Cohn said at
the briefing that one deduction on Trump's chopping block is for state and
local tax payments, which is estimated to cost the U.S. Treasury $96 billion
this year. Ending it would raise about that much in revenue.
Such a move
would hurt high-tax states, which tend to vote Democratic, such as New York and
California, where the state and local tax deduction is a major item, said some
tax analysts.
Like all of
Trump's proposals, this one would face intense scrutiny in Congress.
The No. 2
Democrat in the Senate, Dick Durbin, attacked the tax proposal and the fact
Trump, a wealthy New York real estate developer, had declined to make public
his personal tax returns.
"President
Trump should release his own tax returns if he wants to have any credibility in
a debate about America’s tax code," Durbin said. Mnuchin said on Wednesday
that Trump did not intend to release his tax returns.
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