President Donald Trump’s top economic team unveiled what they called the biggest tax cut in US history, proposing a sharp reduction in corporate taxes and a simplification of individual rates they said would unleash economic growth.
Steven Mnuchin, the Treasury secretary, said the proposal would slash corporate taxes from 35 per cent to 15 per cent and include a “one-time” cut-rate tax to induce companies to repatriate trillions of dollars of profits held overseas.
“We want to simplify the personal tax system, lower taxes and create economic growth. This is going to be the biggest tax cut and largest tax reform in the history of our country,” Mr Mnuchin said.
But Mr Trump’s economic team conceded they had yet to nail down the details of their plans with lawmakers on Capitol Hill, where the Trump administration’s aggressive push on the cusp of the president’s 100th day in office has ruffled feathers.
Promising the most radical reforms in 30 years, Gary Cohn, the former Goldman Sachs executive who is now chief White House economic adviser, said: “We have a once in a generation opportunity to do something really big.”
Mr Mnuchin claimed the administration was “on the same page” as Republicans in the House and Senate after briefing them on Mr Trump’s tax plan.
But in a sign of the divisions that have opened up with House speaker Paul Ryan, Mr Mnuchin said a controversial import tax that is key to Congressional Republicans’ plans did not work “in its current form”.
The Treasury secretary also was unable to guarantee that the tax reform package would be revenue-neutral, and therefore permanent — something that Mr Ryan has been prioritising. Without Democratic support the tax cuts would have to be temporary if they would otherwise add to the deficit beyond 10 years.
“The goal is to make it permanent but there are a lot of levers there. If we have them for 10 years that is better than nothing,” said Mr Mnuchin.
The White House said US companies were labouring under a tax system that had not been updated since the 1980s and promised to respond to one key corporate demand: ending the taxation of business’s future earnings outside the US.
“We are one of the least competitive countries in the developed world when it comes to corporate tax. So tax reform is long overdue,” said Mr Cohn.
For individuals, the proposal included simplifications, a cut in the top tax rate from 39 per cent to 35 per cent, and a reduction in the number of tax brackets from seven to three.
“[Taxpayers] are sick of turning their paychecks over to Washington and having no idea how they money is spent,” Mr Cohn said at a White House news conference.
Taxpayers with incomes of up to $24,000 would pay nothing under the plan, and it would double the standard deductions — which would significantly lower the amount of income subject to federal income tax.
Despite the ambitious headline measures, both Mr Cohn and Mr Mnuchin acknowledged there were few details of how many of the new measures would be implemented, including what incomes would be subject to the new individual rates. The discounted tax rate for repatriating corporate taxes was left similarly vague.
“We have outlines. We have a broad-brush view of where they’re going to be,” said Mr Cohn. “We’re running an enormous amount of data on the proposals. We will be back to you with very firm details.”
Ahead of Wednesday’s announcements there was speculation Mr Trump would pair the tax reform package with infrastructure measures — something that could entice Democratic support. However, Mr Mnuchin said the plan being presented was “just tax reform”, while adding that he was hopeful that Democrats would work with the administration.
While Mr Ryan said on Wednesday Republicans welcomed the proposals and claimed the package was “along exactly the same lines that we want to go”, elements of Mr Trump’s plan depart from his own core proposal, which has been the focus of discussions to date.
Max Baucus, a former Democratic senator who chaired the Senate finance committee, said Mr Trump’s proposals were “a bit rushed, not sufficiently thought through”, and predicted a tax bill would not get through Congress this year.
“They are too much based on the belief that he is president and because the Congress is of the same political party he can push something through,” Mr Baucus added. “And in my experience, major issues like healthcare reform and tax policy, you have to work with the other side.”
However, Rohit Kumar, a former aide to Senate majority leader Mitch McConnell who is now at PwC, said the president’s intervention was helpful because reform was impossible without his involvement and leadership. “No matter how much Congress wants something, if the president is not on board it is not going to happen,” he said.
He argued that while there were areas of disagreement — most obviously on the border adjustment provisions, which were a way of reducing the erosion of the US tax base — it was helpful the differences were being clearly identified. “If you look at it in broad strokes there is far more that they actually agree on than they disagree on,” he said.
Deficit hawks are particularly nervous over the prospects of a package that would boost America’s already yawning budget deficits.
Mr Mnuchin said he thought higher economic growth would ensure the tax-cutting plans added up, a notion budget watchdogs look at with deep scepticism.
A cut in the US corporate tax rate from 35 per cent to 15 per cent would cost $2.2tn in lost revenue over 10 years, according to Alan Cole of the Tax Foundation think-tank. Mr Cole says the US would need to see a sustained 0.9 percentage point increase in its growth rate over 10 years to make up for this kind of revenue loss. That does not look realistic to him: he would expect an uplift of less than half that size.
Additional reporting by Demetri Sevastopulo in Washington