Trump foresees 'good shot' at getting tax reform through Congress
Trump administration officials defended their tax reform framework Tuesday against criticisms that it favors the wealthy, leaves some middle-class families empty-handed, and heaps hundreds of billions of dollars onto the federal deficit.
“This is as much a jobs act as it is a tax act,” said Treasury Secretary Stephen Mnuchin. “This is about creating more opportunities for middle-income workers and companies here.”
Cabinet officials and the president himself spoke to reporters at the White House on Tuesday morning as they continue a concerted effort to drum up support on Capitol Hill and across the country for what could be the first major reform of the tax code in three decades.
The proposed framework would reduce the number of tax brackets from seven to three, knocking the top rate down from 39 percent to 35 percent. It would approximately double the standard deduction and eliminate most other deductions besides mortgage interest and charitable contributions. The plan also cuts the corporate tax rate from 35 percent to 20 percent.
Based on preliminary data, the left-leaning Tax Policy Center concluded that in 2027 the top one percent of households would receive about 80 percent of the net tax cuts, while the bottom 80 percent of the population would receive only 13 percent of the overall cuts. By 2027, the Center claims about one-quarter of taxpayers, mostly earning between $50,000 and $300,000, would be paying higher taxes.
The administration has rejected outside analyses as being built on faulty assumptions about the final tax cut package, but Secretary of Commerce Wilbur Ross conceded that reducing the top tax rate would benefit the biggest taxpayers.
“The top one percent pays a greatly disproportionate share of the taxes so in absolute dollars that might be true,” he said.
However, he argued the elimination of most current deductions would offset the lower tax rate. He also suggested the impact of the tax cuts would go beyond just lowering rates.
“I think it will directly benefit the majority of people but also indirectly by stimulating the economy, creating more business growth and more jobs,” Ross said, “so you’ll have more people getting more income at lower rates.”
According to Mnuchin, whatever savings the plan provides to the top tax bracket is not the administration’s focus. Instead, the goal is to simplify the personal tax code.
“Ninety-five percent of Americans could do their taxes on one page, a large postcard” if this plan is enacted, he said.
Labor Secretary Alexander Acosta also highlighted the simplicity, noting that even more people will opt for the standard deduction if it is doubled rather than going through the effort of itemizing.
“They’re having not just their taxes reduced but they’re getting something very valuable, which is time,” he said.
Administration officials emphasized the importance of the corporate tax cut and another provision that would allow some small businesses that file as pass-through entities to pay lower rates.
“We need to make the business tax system competitive,” Mnuchin said. “We have one of the highest corporate tax rates in the world, we tax on worldwide income, we have deferral, if you leave your money offshore, you don’t pay tax. So there’s trillions of dollars sitting offshore.”
Getting businesses to invest more money in the U.S. will lead to more jobs and higher wages, according to Acosta.
“We need to unleash the power of the American economy,” he said. “You know, jobs are created by small business. And as small business grows and expands, so do the jobs available. And let me say this, it’s not just about jobs, it’s about quality jobs and it’s about how much of your paycheck you can take home.”
The GOP tax reform framework also allows for full expensing of capital investments for at least five years, which Acosta suggested would encourage business owners to buy more equipment and hire more workers to operate it.
“When small businesses invest in capital expenditures that create jobs, they can for the first five years fully deduct those,” he said. “So if a small business needs to buy another forklift, that’s great for business but you know what, they also need to buy not just the forklift but they need to hire a forklift driver.”
The White House Council of Economic Advisers released a report Monday predicting that the corporate tax rate cut Republicans are proposing will lead to $4,000 to $9,000 in additional wages for the average family. Other economists have disputed that figure, including former Treasury Secretary Lawrence Summers who dismissed it as "some combination of dishonest, incompetent and absurd."
Before Congress can consider tax reform legislation, both chambers will need to pass a budget resolution that lays out parameters for using the reconciliation process. Republicans plan to use that procedural maneuver to pass a bill with a simple majority in the Senate, but they will first need to agree on reconciliation instructions that spell out how much the tax cut package can cost.
The current Senate budget resolution would allow for tax cuts that cost $1.5 trillion over ten years, but Mnuchin claimed the economic growth spurred by the cuts would produce so much revenue that it could ultimately reduce the deficit by as much as $1 trillion.
According to Ross, the tax reform package will be “roughly deficit-neutral.”
“With a thing as complicated as tax, you can’t pin it down to the very last penny,” he said. “But our studies suggest it may even be deficit-positive. But it’s certainly not going to be meaningfully deficit-negative.”
Counselor to the President Kellyanne Conway said some of the plan’s critics are unfairly basing their deficit assumptions on static scoring rather than dynamic scoring that factors in presumed economic growth.
“They’re not accounting for the growth that is baked in this tax cut cake,” she said. “When you cut taxes, growth follows.”
Despite stumbles attempting to shepherd health care legislation through the Senate, Trump said he is optimistic about getting the tax reform package approved by Congress.
“We’ll see what happens but I think we have a good shot at the budget, and if we get the budget we have a good shot at tax cuts, and these will be the biggest tax cuts in the history of this country,” he promised.
Officials believe their tax reform push has the public behind it, and that momentum will create a smoother path through the legislature.
“I think the GOP and, for that matter, the Democrats have begun to realize the public really likes the idea of a tax bill, and therefore that’s stimulating their interest in getting on with it,” Ross said.
Americans want and need these tax cuts, according to Acosta.
“I think Congress understands that they need to act,” he said. “We need to create jobs in this nation. The unemployment rate right now is 4.2 percent, the lowest in 17 years, but we can’t just accept that and move on.”
Conway pointed to Trump’s press conference Monday with Senate Majority Leader Mitch McConnell as evidence that Republicans are united in doing what they believe the public elected them to do.
“I think it’s a sign of momentum and also cohesion and cooperation and conversation among the Senate majority leader and the president who, no mistake, the country put into place at the same time because they’re sick and tired of divided government and the inertia that is Washington, D.C.,” she said.
She also suggested bipartisan support is not entirely out of the question, even though many Democrats have signaled opposition to anything that cuts taxes for the wealthy.
“How in the world are these Democratic officeholders going to return home and look their constituents in the eye and say when I had a chance to reduce middle-class taxes?” she said. “When I had a chance to get job creators tax bracket reduced from 35 percent to 20 percent, small business owners to 25 percent, those who do the pass-through filings, I, on the altar of petty partisan politics, I said no to meaningful tax reform?”
Conway named specific Democratic senators who may be vulnerable in upcoming reelection fights as potential allies.
“They want to do that?” she asked. “Heidi Heitkamp, Joe Donnelly, Joe Manchin, among others, they’re going to go home and say that in states that Donald Trump carried by double digits? Doesn’t seem plausible.”