U.S. President Donald Trump on Wednesday proposed slashing tax rates for businesses and on overseas corporate profits returned to the country in a plan that his fellow Republicans in Congress generally welcomed but viewed as an opening gambit.
The Trump administration touted the president's blueprint - which also calls for raising standard deductions for individuals, reducing the number of tax brackets and repealing inheritance taxes on estates - as a landmark proposal just days before Trump marks his 100th day in office on Saturday.
While Republicans, who control the House of Representatives and the Senate, have long eyed tax cuts, Trump's proposal may be unpalatable to party fiscal hawks. It lacks plans for raising new revenue and could potentially add billions of dollars to the federal deficit.
The proposals were unveiled at the White House by Trump economic adviser Gary Cohn and Treasury Secretary Steve Mnuchin, who called them "core principles" that would be worked on with Congress to produce a bill that can be passed.
The planned cuts would pay for themselves through economic growth, and by reducing tax deductions and closing loopholes, Mnuchin said.
"Our objective is to make U.S. businesses the most competitive in the world," he said. "The president is determined to unleash economic growth for businesses."
House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the top Republicans on the congressional tax-writing committees welcomed the 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 changes to taxation, they said in a statement.
Details of Trump's plan emerged before the formal announcement. Ryan, a longtime champion of a major tax restructuring, expressed optimism about it on Wednesday morning, even though it did not include a "border adjustment" tax on imports that he has pushed. That idea was part of initiatives floated by House Republicans as a way to offset revenue losses resulting from steep tax cuts.
"We're in agreement on 80 percent and on the (remaining) 20 percent we're in the same ballpark," he said.
Senior Democrats assailed the plan, including its underpinning ideology of "trickle-down" economics.
Ron Wyden, the top Democrat on the Senate tax committee, called it "unprincipled" and said it would produce tax cuts for the wealthy, conflicts for the president because of his own business interests, "crippling debt for America and crumbs for the working people."
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.
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. "The market will not interpret the plan negatively, but there are obstacles in that course, just like with anything that Trump says and does."
Trump's plan would cut the income tax rate paid by public corporations to 15 percent from 35 percent and reduce the top tax rate assessed on pass-through businesses, including small partnerships and sole proprietorships, to 15 percent from 39.6 percent, the White House said.
While public corporations' profits or losses are taxed directly, "pass-through" businesses are taxed under the individual income tax code.
Mnuchin also said that Trump was proposing that corporations bring offshore profits into the country at a rate well below the current 35 percent rate. 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, or repatriated. Trump proposes requiring repatriation, but at the lower rate.
If enacted, the measure would produce a one-time surge in revenue that could be dedicated to infrastructure spending, an idea that could attract votes from Democrats.
For individual U.S. taxpayers, the Trump plan would simplify tax returns by reducing the number of tax brackets to three (10 percent, 15 percent and 35 percent) from seven and double the standard deduction available to taxpayers who do not itemize their deductions.
Democrats and fiscal-hawk Republicans will be concerned about how much Trump's proposals would cause the deficit to balloon. To minimize that impact, 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.
"The overall economic plan consists of massive tax cuts and tax reform, regulatory relief and renegotiating trade deals, and with that we will unlock the economic growth that’s been held back for too long in this country,” Mnuchin said.
Business groups including the U.S. Chamber of Commerce welcomed the proposal, while noting it was just the start of potential changes to taxation.
The Retail Industry Leaders Association, comprising some of the nation's largest retailers, including Wal-Mart Stores Inc (WMT.N), Target Corp (TGT.N) and Best Buy Co Inc (BBY.N), praised the call for a lower tax rate and reiterated opposition to the idea of the border adjustment tax, which some companies fear would raise consumer prices.
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.
Banner and thumbnail credit: Reuters