Trump and Congress Both Want Tax Cuts. The Question Is Which Ones.

House Republicans already have a fairly detailed blueprint for Congress and the White House to follow.

“My sense is that Trump doesn’t really have the details of a tax reform package that he wants,” Mr. Gale said. “He has broad ideas, and then the Congress will go at it and pin down the details. The House blueprint seems like the place to start and may be fairly close to where they finish.”

That does not mean Mr. Trump will not have his own ideas. Mr. Gale expects a Trump White House to insist on continuing a deduction for interest paid on debt-financed projects, a provision dear to real estate developers. (The House plan proposes ending the deduction, instead allowing businesses to immediately deduct expenses and investments.)

While sweeping tax cuts were never a crusading theme of Mr. Trump’s, they have long been near the top of Mr. Ryan’s agenda. And Mr. Trump has suggested he would be happy to let Congress take the lead.

“They’ll have to take the temperature of the White House to see what pieces of Trump’s campaign promises have to be incorporated into that,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and now president of the American Action Forum, a conservative economic advocacy group. “But I assume the House tax plan is the starting point.”

There is certainly a significant overlap. Both would cut income tax rates across the board and keep rates low on income from investments, an approach intended to spur savings that effectively guarantees the juiciest cuts for the wealthy.

An analysis of Mr. Trump’s latest plan by the Tax Policy Center calculated that the top 0.1 percent of the population, those with incomes over $3.7 million in 2016, would receive an average 14 percent reduction, or about $1.1 million. Households in the middle of the scale — those earning between about $48,000 and $83,000 today — would get a 1.8 percent tax cut worth on average $1,010, while the poorest fifth of Americans will gain about $110, or 1 percent of their income.

Both Mr. Trump’s and Mr. Ryan’s plans eliminate a deep-rooted Republican bête noire, the estate tax on bequests to heirs. Under today’s code, it falls on only 0.2 percent of households, since it applies only to estates worth more than $10.9 million for a married couple.

Their plans, in conjunction with rejecting the Affordable Care Act, drop the 3.8 percent surtax on high earners’ investment income, which helps pay for health coverage for lower-income Americans. Both also take aim at the alternative minimum tax, which was originally established to make sure that those earning high incomes do not entirely escape taxes by invoking certain deductions but now falls mostly on the upper middle class in affluent regions of the country.

How Much Tax Do Corporations Actually Pay?

What American corporations pay in taxes has been a contentious issue in recent years and became even more so in the recent presidential campaign. But while the United States’ official corporate tax rate is 35 percent, many companies pay far less than that, thanks to a variety of accounting maneuvers, including keeping foreign income offshore. Below is a listing of the effective tax rates — based on the actual cash taxes paid to federal, state, local and foreign regulators — of the top 50 companies in the Standard & Poor’s 500-stock index.

Effective tax rates for companies in the S. & P. 500 Top 50

Average rates for fiscal years 2006-15

Effective tax rates for companies

in the S. & P. 500 Top 50

Average rates for fiscal years 2006-15

Lowering the tax on capital gains — which also benefits the wealthy the most — draws wide support among the leadership headed for both ends of Pennsylvania Avenue in 2017 as well.

Republicans say they also want to provide some tax cuts for those lower on the income ladder. Senator Marco Rubio, who was re-elected to represent Florida after his failed presidential bid, favors increasing the child tax credit; Mr. Ryan, who is working closely with Kevin Brady of Texas, the chairman of the House Ways and Means Committee, supports expanding the earned-income tax credit to poor working families without children. Mr. Trump has suggested he wants to provide tax cuts to two-income families with children as well.

For all the similarities, there are important differences as well. The biggest contrast between Mr. Trump’s and Mr. Ryan’s tax approaches can be seen on the corporate side, where they differ on how to tax capital investment and debt. They also differ on the proposed tax rate for most small businesses.

The most compelling target for business tax reform is the roughly $2.6 trillion that American corporations like Apple, General Electric, Microsoft and Pfizer have kept abroad on an extended tax holiday, out of the Internal Revenue Service’s reach.

“Everyone agrees that the foreign tax situation is ludicrous because it doesn’t raise any revenue and keeps several trillion dollars abroad,” said Robert Pozen, a senior lecturer at the M.I.T. Sloan School of Management.

Mr. Trump has said he was determined to get multinational companies to pay their American tax bills every year, although the sting would not be as great since he would also cut corporate rates and allow credits for foreign taxes paid.

By contrast, the House Republicans have been pushing for what is known as a territorial system, which would tax all businesses solely on what goods and services they sold in the United States.

The flaw in a territorial approach, Mr. Pozen and other economists have pointed out, is that it encourages businesses to shop the world for lower tax rates, ultimately shifting even more profits and jobs overseas.

“Why is that good for a president who wants to have more jobs and more facilities in the U.S.?” Mr. Pozen asked. “I don’t see how you can reconcile those goals under a territorial system.”

Mr. Pozen favors a global minimum tax that every American business would have to pay. Companies that shift their tax home or try to funnel more profits through low-tax nations would nonetheless be required to make up the difference between that rate and the minimum by paying the United States Treasury.

However part of that stash is recaptured, there is a broad consensus in Congress that some of the new revenue should be used to invest in repairing and improving public infrastructure. Mr. Trump spoke of spending $1 trillion over 10 years on roads, bridges, waterways and airports, although he said he planned to rely primarily on tax credits for private companies, equity investments and privately raised debt.

Linking international reform to infrastructure funding could work, said Janice Mays, a former staff director of the Ways and Means Committee who is now a managing director at the tax and accounting firm PricewaterhouseCoopers. “I do think Trump wants to do infrastructure, to help people get jobs and stimulate the economy.”

But as a longtime veteran of budget and tax battles on Capitol Hill, Ms. Mays warned that obstacles continually pop up in both expected and unexpected places. The size of the projected deficit from the various tax-cutting plans — as much as $7 trillion over a decade — could set off an internal war among Republicans who favor restraining spending on Social Security, Medicare and benefit programs for the poor and those, like Mr. Trump, who say they want to prevent the blue-collar families who flocked to his campaign from losing government programs that help keep them above water.

“I just think they may be a little optimistic at the moment,” Ms. Mays said.

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12 November 2016 | 4:48 pm – Source:


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