Republican tax negotiators are targeting a corporate tax rate of 20 percent, according to two people familiar with the matter—but there’s at least one potential obstacle: President Donald Trump.
“We’ll see what happens, but I hope it’s going to be 15 percent,” Trump told reporters Sunday as he prepared to return to Washington, D.C., after a weekend in New Jersey. The current corporate tax rate is 35 percent. Meanwhile, the group of administration officials and congressional leaders that’s planning a framework for tax legislation is also expected to recommend cutting the top individual tax rate to 35 percent, down from 39.6 percent, according to two people familiar with the matter.
Trump confirmed that his administration has hammered out a plan with congressional Republican leaders—though his administration has stopped short of confirming any details. The corporate and individual tax rates will be key portions of that plan—and Trump’s brief late-afternoon remarks raised questions about both.
Trump plans a trip to Indiana Wednesday for a speech on tax issues, a person familiar with the planning said. The White House and congressional Republican leaders are preparing for a push for tax legislation that follows a series of defeats since Trump’s inauguration, including their failure so far to repeal Obamacare.
Deductions in question
Trump and Treasury Secretary Steven Mnuchin have said previously that they didn’t want the tax plan to offer any tax cut to the highest earners—and that they’d balance a rate cut by eliminating deductions that the wealthy use to reduce their tax bills. Mnuchin said in November, weeks after Trump’s election, that “there will be no absolute tax cut for the upper class.”
Reminded of that on Sunday, Mnuchin said: “It was never a promise and it was never a pledge.” But he said again during an appearance on CNN’s “State of the Union” that the tax plan that’s coming this week will be “getting rid of lots of deductions.”
“The current plan—for many, many people, it will not reduce taxes on the high end,” Mnuchin said. He also said the plan will provide a middle-income tax cut and said it will create jobs.
For the top 1 percent of earners—roughly, those who make more than $465,600 a year—it would be “challenging” to close enough loopholes to offset the tax cut offered by the proposals under discussion, said Kyle Pomerleau, director of federal projects for the Tax Foundation, a Washington policy group.
That’s partly because lawmakers are also discussing a tax cut for “pass-through” businesses: those which don’t pay taxes themselves, but pass their earnings to owners, who then pay tax at their individual rates. Setting a lower tax rate for such businesses—which can be quite large and profitable—“is a significant tax cut for the top 1 percent,” Pomerleau said.
Mnuchin on Sunday didn’t mention specific tax rates—for individuals, corporations or pass-throughs. Nor did Marc Short, the White House legislative affairs director, during an appearance on “Fox News Sunday.” “The president will have to sign off on that and he’ll make his announcement on Wednesday,” Short said.
Senate Minority Leader Chuck Schumer—who has said Democrats want to prevent tax legislation from benefiting the top 1 percent—went on the offensive Sunday.
“If Republicans push a tax bill to please their hard-right wealthy contributors, instead of working from the middle, they will have the same trouble with taxes that they’re having with health care,” he said in an emailed statement.
While members of Trump’s own administration have suggested that Trump’s position on the corporate rate might be subject to compromise, the president may yet resist a plan with a rate higher than 15 percent, one person familiar with the matter said.
The people asked not to be identified because details of the tax plan and Trump’s schedule haven’t been publicly announced. Trump said Friday night, during a campaign rally in Huntsville, Alabama, that a tax plan would be released this week, and summarized it as “massive tax cuts.”
The effect of such cuts on the $20 trillion federal debt remains to be seen. Last week, a pair of key Republican senators reached an agreement on the framework for a 2018 budget resolution that’s expected to allow for a tax cut of $1.5 trillion over 10 years that would add to the deficit—before accounting for any growth or other economic effects of the cuts.
Though proponents say tax cuts would boost growth enough to make up for the shortfall, a budget that allows for deficit-increasing tax cuts would depart from years of Republican support for balanced budgets.
Short said Sunday that Trump’s administration “continues to be committed to making sure we’re being fiscally responsible.” While there may be a short-term decrease in revenue, he said, tax cuts would “provide growth that we think will bring in more revenue in the long term.”
House Speaker Paul Ryan and other congressional leaders have discussed a corporate tax rate in the low to mid-20s. Based on recent discussions, the GOP will probably aim for a rate in the range of 20 to 24 percent, said Ryan Ellis, a Republican tax lobbyist who previously worked as chief tax policy director for Grover Norquist’s Americans for Tax Reform.
The Big Six
Ellis said he also expects the so-called “Big Six” negotiators to seek a top individual rate of 35 percent. The Big Six are Mnuchin, National Economic Council Director Gary Cohn, Ryan, Senate Majority Leader Mitch McConnell, and the chairmen of the congressional tax-writing committees.
Ellis also said he expects the framework will call for doubling the standard deduction claimed by many middle-class tax filers, and for repealing the estate tax, which applies only to estates worth more than $5.49 million.
It’s unclear how detailed the framework will be—or whether it will represent the unified approach that the president and Republican leaders have sought.
Senate Finance Chairman Orrin Hatch, a member of the Big Six, has said he’ll regard the document as a guide, but that his panel won’t be bound by it. Nor will his committee be a “rubber stamp” for any particular plan, Hatch said.
The Washington Post reported that Republicans were “targeting” a corporate rate of 20 percent, citing three unnamed people. But the plan remains fluid, those people told the paper. The news website Axios reported on Saturday that the Big Six had already agreed to a 20 percent rate.
House Republicans plan to hold a conference meeting Wednesday, and public information about the plan is expected shortly afterward.
Spokeswomen for Ryan and for House Ways and Means Committee chairman Kevin Brady declined to comment Saturday when asked about the reported details of the emerging plan.