The Trump Administration has released the ‘core principles’ of the president’s plan for tax reform and simplification.
The Trump Administration has released a short list of tax reform principles, which include lowering the corporate tax rate to 15 percent and a significant reduction in individual income tax rates. The release was touted as ‘The Biggest Individual and Business Tax Cut in American History’. Other aspects included the so-called mandatory repatriation tax on unremitted earnings of US multinationals and moving to a territorial system for future overseas income.
The principles do not, however, include references to either the interest expense disallowance or so-called ‘border adjustable’ proposal that are key elements of the House of Representatives Republican Blueprint for tax reform, which calls for a corporate rate reduction to 20 percent but is intended to be revenue neutral in the aggregate over the critical ten-year time line under certain US congressional budget legislation rules.
The President’s economic team indicated at the press briefing where the principles were announced that the loss of revenue from lower rates would be offset by faster than expected growth in the US economy and the elimination of unspecified ‘tax breaks for special interests’. When asked earlier in the day specifically about the highly controversial border adjustable proposal, Secretary Mnuchin said the Administration could not support it “in its current form”.
Immediate reaction from various sources was that the principles could result in an increase in the US federal budget deficit of several trillion dollars over the ten-year period and, as a consequence, would not be acceptable to many Republican members of Congress and would not comply with congressional budget rules for making permanent law changes. The Trump Administration stated that it will continue to work behind the scenes with Republican leadership from the Senate and House of Representatives to develop a set of proposals that has a realistic chance of passage in both Houses.
The content of that package and the new corporate tax rate are very uncertain at this point. In addition, the timing of the legislative process is unknown. The Administration is clearly hopeful that the legislation can be developed and move to enacted as soon as possible and not later than the end of the year. The previously announced goal of final legislation by the end of August appears no more likely following the release of the President’s principles. Furthermore, there was no meaningful mention from the White House of the intended effective date of the legislation.
In addition to the President’s principles and the Republican Blueprint, various legislative proposals that were crafted over the past decade, such as Congressman Camp’s Bill, remain as potential sources of content (including revenue raisers) for the final tax reform package.
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