May 1, 2017 - Weekly Legislative Update
White House Tax Plan Presented
A bare-bones tax reform plan presented at a White House briefing on April 26 ended with the presenters, National Economic Council Director Gary Cohn and Treasury Steven Mnuchin, unable to provide important details, especially regarding business taxation.
Cohn and Mnuchin repeatedly stressed they were working with the House and Senate and talks and "listening" are just beginning, so details will come later.
- On the question of the target corporate tax rate, "Our goal is to make business rates very competitive." (The 15 percent corporate rate you've been reading about wasn't mentioned-it hasn't gone away because it's long been the President's goal-but, in deference to the House and Senate, it's a number to be negotiated with Congress).
- On foreign income: "We're moving to a territorial system . . . there'll be a one-time tax on deferred profits returned to the US." (No tax amount cited, although 10 percent has been mentioned.)
- On whether tax cut will be paid for, "there are many details coming on how it will pay for itself . . . reductions in tax rates will be offset by significant reductions in other items . . . the goal is to unleash economic growth of 3% or higher-that'll provide billions and billions of dollars in taxes."
- On taxation of small and medium businesses filing as individuals or partnerships: "those businesses will get the same rate as corporations."
- On when we'll see details, "As quickly as we can . . . We're working with the House and Senate and when we reach agreement we'll let you know."
On individual income taxes, briefers offered more substance:
- "Goal is largest-ever tax cut for the American people, especially low and middle income families."
- Aiming for three brackets of 10, 25, and 15 percent.
- Standard deduction for a married couple to be doubled to $24,000; in effect, first $24,000 won't be taxed.
- Establish deduction for child and dependent care.
- Repeal alternative minimum tax.
- Phase out the inheritance tax over one year.
- Set 20 percent tax rate for capital gains and dividends.
Retain deductions for home ownership, retirement savings, and charitable donations-eliminate all other personal deductions.
For transcript of the briefing, go to www.whitehouse.gov and click on "Latest News," then on "Briefing by Secretary of Commerce Steven Mnuchin and Director of the National Economic Council Gary Cohn." ("Secretary of Commerce" should be "Secretary of Treasury.")
Good news for WOTC supporters is word that Trump's plan will include no "pay-for's," that is, revenue increases to offset tax cuts in the plan. If adopted, this would make it easier to fit permanent WOTC into the tax reform bill.
Under the Trump plan, tax cuts would be funded by revenue expected from a sharp boost in economic growth stimulated by tax reform and the President's budget.
The President's plan wouldn't be revenue-neutral under scoring rules in the Budget Act, thus tax reform enacted via budget reconciliation would be limited to ten years under current law.
The Trump Team is counting on winning support of Democratic leaders by including robust infrastructure spending and family-friendly measures. In that scenario, tax reform could be passed via regular order rather than reconciliation procedures.
The White House is calling attention to deep spending cuts made by the President's first budget to be introduced in three weeks. Those cuts are touted to hold down the size of the Federal deficit despite tax cuts and increases in defense, immigration, and law enforcement spending.
We are a long way from reconciling the Ryan-Brady plan, the President's plan, and the Senate's plan.
Given the titanic struggle brewing between Democrats and Republicans over President Trump's soon-to-be-released budget for Fiscal Year 2018 (taking effect October 1), tax reform's priority may have to yield to the "must-do" budget fight encompassing eleven major appropriations bills.
In our view, it's increasingly likely it'll be next year before tax reform can come up for a vote.