Donald Trump tax cut: Huge, vague and likely mild boost for economy
President Donald Trump‘s team boasted Wednesday that its tax-cut plan would lighten Americans’ financial burdens, ignite economic growth and vastly simplify tax filing. Yet the proposal so far remains short of vital details, including how it would be paid for. And based on the few specifics spelled out so far, most experts suggest that it would add little to growth while swelling the budget deficit and potentially handing large windfalls to wealthier taxpayers. Trump’s plan would replace the current seven income tax brackets with three, and the top bracket would drop from 39.6 percent to 35 percent. It would also slash the corporate rate from 35 percent all the way to 15 percent, a boon to most companies even though many don’t pay the full tax now. With tax credits and other loopholes, most corporations pay closer to 20 percent, according to calculations by JPMorgan. Perhaps the most contentious plank would enable taxpayers with business income — including those wealthy enough to pay the top tax rate — to instead pay the new 15 percent corporate rate. That’s because Trump would apply the corporate rate to “pass through” businesses. Pass-throughs include partnerships such as law firms and hedge funds as well as most small businesses — from the local florist to the family-owned restaurant on Main Street. What’s more, some privately held large companies — including Trump’s own real estate empire — are structured as pass-throughs and would benefit, too. Here’s a closer look at Trump’s proposal and its likely impact: ___ WHO BENEFITS? It’s hard to say because the administration has released so few details. The three new income tax rates would be 10 percent, 25 percent and 35 percent. But Trump’s top economic adviser, Gary Cohn, and Treasury Secretary Steven Mnuchin, weren’t ready Wednesday to say at what income levels these new rates would kick in. Tax experts said far more details were needed to determine how average Americans would be affected. “The impact on Joe Taxpayer is unknown,” said Marc Gerson, vice chair of the tax department of law firm Miller & Chevalier in Washington. “There’s not enough specificity. It’s hard for taxpayers to determine where they’ll come out.” Cohn asserted that the plan would cut taxes “especially for low and middle income families.” It purports to do so in part by doubling the standard deduction, which is used by taxpayers who don’t itemize their tax deductions. At the same time, the Trump plan would eliminate the estate tax and the alternative minimum tax, thereby benefiting some of the richest taxpayers. And that’s on top of shrinking the corporate tax rate that many affluent individuals could likely capitalize on. ___ WHY CUT CORPORATE TAXES? By making corporations more profitable, the Trump administration hopes to encourage more business spending on equipment — from computers to factories and machinery. Doing so, in turn, could make the economy more efficient and accelerate growth and hiring. Economic growth has been stuck at about 2 percent a year since the recession ended in 2009. Mnuchin says the administration wants to accelerate it above 3 percent, a pace it hasn’t touched since 2005. The corporate tax cuts are also intended to encourage more businesses to stay in the United States, which now has the highest corporate rate among advanced economies. Many large corporations are enthusiastic about lower rates and say they support the elimination of loopholes, which both reduce revenue and make taxes more complicated. ___ WHO’D BENEFIT FROM THE CORPORATE RATE CUT? Aside from most large companies, many partnerships and small businesses would benefit because they’re structured as pass-throughs, which derives from the fact that they pass on their profits to their owners. Those owners now pay individual income tax rates, which top out at 39.6 percent. With the pass-through rate dropped to 15 percent, those taxpayers could enjoy an enormous tax cut. The Trump team stressed the benefits that might flow to small businesses. But the richest windfalls would flow to the wealthy — lawyers, hedge fund managers, consultants and other big earners. Nearly 75 percent of pass-through income flows to the 10 percent wealthiest taxpayers, according to the liberal Center on Budget and Policy Priorities. “It would tremendously help high earners,” says Brian Thompson, a certified public accountant in Chicago. In Kansas, Gov. Sam Brownback eliminated state taxes on pass-throughs, which turned out to be a boon for Bill Self, the coach of the University of Kansas’ men’s basketball team. He had previously set up his own company, according to state media reports. As a result, he paid little state income tax despite earning nearly $3 million a year. Many people, particularly wealthy Americans, could set up companies and reclassify their paychecks as “business income” and have it taxed at 15 percent, experts say. In Kansas, the number of pass-through businesses jumped to more than double the level the state expected, according to the nonpartisan Tax Policy Center. That cost the state revenue without spurring more job creation. Mnuchin said the Treasury would issue rules to prevent wealthy people from capitalizing on the lower rate. But many experts are skeptical. “Good luck with that,” said Mark Mazur, director of the nonpartisan Tax Policy Center and a former Treasury official under President Barack Obama. “The tax agencies tend to be at least a couple of steps behind the businesses.” ___ HOW ELSE WOULD BIG BUSINESSES BENEFIT? The administration is also proposing to tax only corporate income earned in the United States. This is known as a “territorial” system. It would replace the current worldwide system, under which corporations pay tax on income earned in the U.S. and overseas. Yet companies can avoid the tax if they keep their foreign earnings overseas. Many businesses have kept hundreds of billions of dollars outside the United States. Mnuchin said Trump’s plan would encourage corporations to return the money to the United States and invest it in plants and equipment. Some analysts counter that corporations might instead use the money to pay dividends to
Winners and losers in Donald Trump’s first budget plan
Military spending would get the biggest boost in President Donald Trump‘s proposed budget. Environmental programs, medical research, Amtrak and an array of international and cultural programs — from Africa to Appalachia — would take big hits, among the many parts of the government he’d put on a crash diet. The budget proposal out Thursday is a White House wish list; it’ll be up to Congress to decide where money goes. If Trump gets his way, there will be more losers than winners among government departments and programs. Some programs would tread water: WIC grants — money to states for health care and nutrition for low-income women, infants and children — are one example. Monday for states grants for water infrastructure projects would be held level as well. Some others would lose everything: Trump proposes to eliminate money for the Corporation for Public Broadcasting, the national endowments for the arts and the humanities and more than a dozen other independent agencies financed by the government. A sampling: WINNERS —The Pentagon. Trump proposes a 10 percent increase in the massive defense budget, adding $52 billion in military spending in one year top expand personnel, equipment and capability. Another $2 billion would go to nuclear weapons. —Veterans Affairs. Up 5.9 percent. That’s an additional $4.4 billion, driven by ever-growing health care costs. —Homeland Security. Up 6.8 percent. That’s $2.8 billion more. Most of the increase, $2.6 billion, would be to help kick-start Trump’s promised border wall. The president has repeatedly said Mexico would pay for the wall; Mexican officials are adamant that they won’t. Trump also wants an extra $1.5 billion for more immigration jails and deportations, and $314 million to hire 1,500 immigration enforcement and border patrol agents. —The National Nuclear Security Administration, which oversees the maintenance and safety of the nuclear arsenal and its research labs. The agency would grow by 11.3 percent, or $1.4 billion, so that it takes up more than half the Energy Department’s budget, which would shrink overall. —Opioid prevention and treatment: a proposed $500 million increase in the Health and Human Services Department to counter the epidemic and more money for the Justice Department to combat the problem. —School choice: $1.4 billion more to expand school choice programs, bringing spending in that area to $20 billion, even as the Education Department’s overall budget would be cut by $9 billion, or 13 percent. LOSERS: —EPA, facing a 31.4 percent cut, or $2.6 billion. The plan would cut 3,200 jobs at the agency, eliminate a new plan for tighter regulations on power plants, and “zero out” programs to clean up the Great Lakes and the Chesapeake Bay. —Health and Human Services, facing the largest cut in dollar terms: $12.6 billion, or 16.2 percent. The plan would cut $5.8 billion from the nearly $32 billion National Institutes of Health, the nation’s premier medical research agency, bringing its total to $25.9 billion. It’s not clear what research on diseases or disorders would lose the most money, although the budget plan specifically calls for elimination of a division that focuses on global health. Already, the NIH’s budget hasn’t kept pace with inflation over the last decade, making it dramatically harder for scientists around the country to win money for research projects into potential new treatments or better understanding of disease. —State Department and U.S. Agency for International Development. Down 28 percent, or $10 billion. Foreign aid would be reduced, as would money to the U.N. and to multilateral development banks including the World Bank. Some foreign military grants would be shifted to loans. —Labor Department. A more than 20 percent cut, or $2.5 billion. To be eliminated: a $434 million program that has helped more than 1 million people 55 and older find jobs, according to the department. The blueprint says the Senior Community Service Employment Program is inefficient and unproven. —Agriculture Department. A nearly 21 percent cut, or $4.7 billion, achieved in part by cutting land acquisition in the National Forest System, rural water infrastructure and statistical capabilities at the department. Trump also proposes reduced staff in county USDA offices, an idea that fell flat in Congress when President Barack Obama proposed a similar reduction. —Transportation Department. Trump proposes a cut of nearly 13 percent, or $2.4 billion. Amtrak, local transit agencies, and rural communities that depend on federal subsidies to obtain scheduled airline service would take the brunt. Trump would eliminate subsidies for Amtrak long-distance train routes, which would most likely mean the end of those routes since they are generally not profitable. Money for the Federal Transit Administration grant program for new light rail and subway construction would be eliminated except for multi-year projects the government has already committed to help fund. —Internal Revenue Service: After years of cuts, the IRS budget would be cut again — by $239 million from this year’s spending levels. The IRS budget is down about $1 billion from its height in 2010. Since then, the agency has lost more than 17,000 employees. As a result, the chances of getting audited have rarely been so low. —Commerce Department. A 16 percent or $1.5 billion cut. The plan would eliminate more than $250 million in National Oceanic and Atmospheric Administration grants, including a program that helps coastal communities adapt to climate change, deal with invasive species and maintain healthy water and fisheries. Also on the chopping block: the Economic Development Administration, which provides federal dollars to foster job creation and attract private investment; and the Minority Business Development Agency, which is dedicated to helping minority-owned business get off the ground and grow. The Trump administration says the two agencies duplicate work done elsewhere. —School programs: The plan would eliminate a $1.2 billion initiative that supports before- and after-school programs as well as summer programs. —Independent agencies supported by tax dollars. If Trump prevails, a hefty contingent of entities would lose all federal money and be shut. Among them, the public broadcasting corporation, the Appalachian Regional Commission, the Chemical Safety Board, the United States
House GOP health bill facing fresh House committee test
The White House and Republican leaders are talking to rank-and-file lawmakers about revising the GOP health care overhaul, hoping to keep a rebellion by conservatives and moderates from snowballing and imperiling the party’s showpiece legislation. Four days after a congressional report projected the bill would pry coverage from millions of voters, signs of fraying GOP support for the legislation were showing. The measure would strike down much of former President Barack Obama‘s 2010 overhaul and reduce the federal role, including financing, for health care consumers and is opposed uniformly by Democrats. In a fresh test of Republicans’ willingness to embrace the legislation, the House Budget Committee was considering the measure Thursday. Republicans expressed confidence the bill would be approved, but the vote could be tight. The panel can’t make significant changes but was expected to endorse non-binding, suggested changes to nail down votes. The bill would eliminate the tax penalty that pressures people to buy coverage and the federal subsidies that let millions afford it, replacing them with tax credits that are bigger for older people. It would cut Medicaid, repeal the law’s tax increases on higher earning Americans and require 30 percent higher premiums for consumers who let coverage lapse. Overt GOP opposition grew after the nonpartisan Congressional Budget Office projected Monday that the legislation would push 24 million Americans off coverage in a decade and shift out-of-pocket costs toward lower income, older people. Obama’s law has provided coverage to around 20 million additional people House Speaker Paul Ryan, R-Wis., told reporters Wednesday that leaders could now make “some necessary improvements and refinements” to the legislation. But he declined to commit to bringing the measure to the House floor next week, a schedule Republican leaders have repeatedly said they intended to keep. At a late rally in Nashville Wednesday, President Donald Trump said: “We’re going to arbitrate, we’re all going to get together, we’re going to get something done.” Vice President Mike Pence met with House GOP lawmakers and pressed them to unite behind the legislation. “‘It’s our job to get it out of here and get it to the Senate,’” Pence told Republicans, according to Rep. Dennis Ross, R-Fla. That would let Trump pressure “Democrats in these red states to come on board,’” Ross said, referring to Republican-leaning states where Democratic senators face re-election next year. But insurgents still abound. Conservatives want to end Obama’s expansion of Medicaid to 11 million additional low-income people next year, not 2020 as the bill proposes. They say a GOP proposed tax credit to help people pay medical costs is too generous, and they want to terminate all of Obama’s insurance requirements, including mandatory coverage of specified services like drug counseling. Rep. Mark Meadows, R-N.C., head of the hard-line conservative House Freedom Caucus, continued pushing for changes. He claimed at least 21 members of his group would oppose the measure as written; the bill would fail if 22 Republicans join all Democrats in opposing it. But underscoring the push-pull problem GOP leaders face in winning votes, moderates feel the tax credits are too stingy, especially for low earners and older people. They oppose accelerating the phase-out of the Medicaid expansion and are unhappy with long-term cuts the measure would inflict on the entire program. Terminating the Medicaid expansion in 2020 and not 2018 “is sacrosanct to me,” said moderate Rep. Tom MacArthur, R-N.J. In a new complication, Sen. Charles Grassley, R-Iowa, said the measure lacked the votes to pass in the Senate, where Republicans hold a precarious 52-48 majority. That left House members angry over being asked to take a politically risky vote for legislation likely to be altered. Moderates “don’t like the idea of taking a vote in the House that may go nowhere in the Senate,” said Rep. Charlie Dent, R-Pa. Amid the maneuvering, a federal report said more than 12 million people have signed up for coverage this year under the very statute that Republicans want to repeal. That figure underscored the potential political impact of the GOP’s next move. Republished with permission of The Associated Press.
