President Trump proposed dramatic cuts in the taxes paid by corporations big and small on April 26 in an overhaul his administration says will spur economic growth and bring jobs and prosperity to America’s middle class. But his ambitious plan alarmed lawmakers who worry about ballooning federal deficits.
The plan would also reduce investment and estate taxes aimed at the wealthy. But administration officials said that action on other key tax code elements would ensure the plan would largely help the middle class instead of the affluent.
The White House has yet to spell out how much of a hole the tax cuts could create in the federal budget, maintaining that the resulting economic growth would reduce—if not eliminate—the risk of a soaring deficit.
The outlined changes to the tax code are the most concrete guidance so far on Trump’s vision for spurring job growth:
- Tax relief for American families, especially middle-income families:
- Reducing the 7 tax brackets to 3 tax brackets of 10%, 25% and 35%
- Doubling the standard deduction
- Providing tax relief for families with child and dependent care expenses
- Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers
- Protect the home ownership and charitable gift tax deductions
- Repeal the Alternative Minimum Tax
- Repeal the death tax
- Repeal the 3.8% Obamacare tax that hits small businesses and investment income
- 15% business tax rate
- Territorial tax system to level the playing field for American companies
- One-time tax on trillions of dollars held overseas
- Eliminate tax breaks for special interests
The administration has announced that they would hold listening sessions with stakeholders over the next month and develop the details of the plan with both chambers that “provides massive tax relief, creates jobs, and makes America more competitive.”
The threat of a rising budget deficit could erode support for the plan among lawmakers in Trump’s own Republican Party. Administration officials intend to hash out additional details with members of the House and Senate in the coming weeks for what would be the first massive rewrite of the U.S. tax code since 1986.
The plan would reduce the number of personal income tax brackets to three from seven: rates of 10%, 25% and 35%. It would double the standard deduction for married couples to $24,000, while keeping deductions for charitable giving and mortgage interest payments. The administration plans to provide tax relief for families with child care expenses, too, although the specifics have yet to be included.
On the other hand, the proposal would also trim other deductions utilized by wealthier Americans. This would include deductions for state and local tax payments, a change that could alienate support from lawmakers in states such as California and New York with high state taxes.
The administration has emphasized that the plan was focused on simplifying the tax code and helping middle-class Americans. The median U.S. household income is slightly above $50,000 annually.
Still, the proposal could reduce the tax burden for the wealthy as well.
It would also repeal the estate tax, the catch-all alternative minimum tax and the 3.8% tax on investment income from President Barack Obama’s health care law. The proposal has yet to be vetted for its precise impact on top earners, as several details are still being determined.
On the corporate side, the top marginal tax rate would fall from 35% to 15%. Small businesses that account for their owners’ personal incomes would see their top tax rate go from 39.6% to the proposed corporate tax rate of 15%. Mnuchin stressed that the change for small business owners — a group that under the current definition could include doctors, lawyers and even major real estate companies — would be done to ensure that wealthier Americans could not exploit the change to pay less in taxes.