Treasury Secretary Mnuchin on February 26, in an interview on Fox News Channel's Sunday Morning Futures, indicated that President Trump would be touching on tax reform in his speech to a joint session of Congress on Tuesday evening, February 28.
The following provides some highlights of the tax reform discussed by Secretary Mnuchin.
On the individual side, Secretary Mnuchin indicated that the focus is on fewer tax brackets, simpler taxes, and creating a middle income tax cut. On the business side, he indicated that the focus is on making U.S. companies competitive, noting the “need to create a level playing field for U.S. companies to be able to compete in the world.”
In terms of repatriation, Secretary Mnuchin noted that he expects that companies “will bring back trillions of dollars that are sitting offshore and redeploy those in the United States.” He also indicated that the administration is looking at “different types of parts of the plan” to encourage businesses to use that money to create new jobs and invest in the business, rather than just buy back stock.
When asked by the interviewer (Maria Baritromo) about the border adjustment (i.e., the proposal in the House Republican “blueprint” for tax reform), Secretary Mnuchin did not indicate whether the administration supported or opposed the proposal. Instead, he stated:
So, let me just say this is something we are studying very carefully. There are certain aspects that the president likes about the concept of a border adjusted tax, there are certain aspects that he's very concerned about. So we're looking at these things. We're looking very closely with the House. We're working very closely with the Senate. And you're going to see a combined plan that takes the best of all of this when we bring it forward.
Later in the interview, when asked about potential complexities associated with a border adjustment tax for companies with intricate supply chains that are both importers and exporters, Secretary Mnuchin reiterated that there would be a “joint plan” that “will be something that will be simple, that companies will know how to incorporate.”
In response to a question about the over $1 trillion in revenue expected to be raised by the proposed border adjustment, Secretary Mnuchin recognized that this revenue could be used to lower the business and corporate rate, which he indicated was important. Nonetheless, he also indicated that the administration’s growth projections alone would provide for more revenue. Affirming the administration’s belief in dynamic scoring, he explained that:
. . . if we make business taxes more competitive, people will do more business here and we'll get more revenues. So although there may be an absolute lower rate, that doesn't necessarily mean it's a corresponding drop in revenues.
In response to a question about whether he worried about possibly getting into a trade war if the United States were to enact a proposal that looks like a border tax, the Treasury Secretary said:
Well, we're not going to get into trade wars. But what we are going to do is the president believes in free trade. But he believes in fair trade. And we're going to renegotiate these dollars so they're good for the American public, they're good for the American worker and they're good for American companies. And all we're looking for are fair deals where the deals work for us and they work for the other parties.
When asked about particular options being considered, Secretary Mnuchin suggested that one of the concepts that the president is considering is “…a reciprocal tax, which is basically saying we want to create a level playing field so that other countries treat us the way we're treating them.” The Treasury Secretary indicated that this would not be a retaliatory tax, but did not provide details regarding what a possible reciprocal tax might look like or to what extent it might interact with or replace a border adjustment-type tax.
Secretary Mnuchin indicated that both healthcare and tax reform are both big priorities, with important economic impacts. In terms of tax reform in particular, he stated:
We need some more time to get tax reform done. And we're doing it under lightning fast proposals. So, you know, for us to get this done by August, which we anticipate we'll do, is going to be really fast.
President Trump may reveal more regarding his views on tax reform in conjunction with his speech to Congress tomorrow or in the weeks that follow. At this time, it is not clear what the “reciprocal tax” idea is or exactly how the White House views the House’s border adjustment tax proposal. The timing for tax reform also remains murky.
<p>© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.</p> <p>KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.</p>
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.