President Trump and top Republicans on Wednesday will unveil a proposal to cut personal and corporate taxes by at least $5 trillion over 10 years, people familiar with the matter said, promising to recoup more than half of the lost revenue by eliminating numerous unspecified tax breaks and deductions.
The blueprint, which party leaders are set to release and promote Wednesday during speeches and meetings, moves Trump and Republicans in Congress a step closer to a top policy goal. But by leaving decisions on which tax breaks to strip away to be negotiated later, they also are delaying controversial choices that could sink the party’s tax effort.
“We’ll be releasing a very comprehensive report,” Trump said Tuesday. “And it will be a very, very powerful document.”
The White House and Republican leaders will propose slashing the corporate tax rate from 35 percent to 20 percent and call for lowering the rate many high-
income businesses pay through the individual income tax code to 25 percent, said the people, who spoke on the condition of anonymity because they were not authorized to discuss the internal negotiations.
The plan is expected to include other incentives meant to spur companies to invest, such as one that will let them write off investments in things such as equipment for at least five years.
In addition, Republicans will call for lowering the top tax bracket for individuals and families from the current 39.6 percent to 35 percent, but they also will ask lawmakers to consider imposing a new, higher rate to ensure that the wealthy do not end up receiving a disproportionate tax cut, compared with the middle class and low-income families. This could include charging them a higher tax rate — but as with many other areas, no final decisions have been made.
There are currently seven individual income tax brackets, and the GOP plan would collapse those into three: one at 12 percent of income, one at 25 percent and one at 35 percent. The GOP framework will not specify which income level triggers specific tax rates, leaving those decisions to be made later by lawmakers.
Republicans plan, however, to shield more income for low-income and middle-class Americans from taxation as one way to deliver a big tax cut.
Republicans also will propose nearly doubling the standard deduction, which allows people to lower their taxable income without specifying details such as charitable contributions or the interest paid on their mortgages.
They will propose expanding the child tax credit by increasing the income level at which this benefit phases out for workers. They also will call for eliminating provisions of the tax code that push married couples into higher tax brackets based on their combined income, a dynamic often referred to as a “marriage penalty.”
Further, the GOP plan will call for eliminating the estate tax, which wealthy families must pay to transfer assets after someone dies.
As Republican leaders tout their tax blueprint, they plan to argue that it would lead to a wave of economic growth, new jobs and better wages if passed into law.
Trump told a group of Democrats and Republicans on Tuesday that the tax framework could lead the economy to grow more than 6 percent a year, more than double what even his advisers had hoped for and a rate that many economists say is preposterous.
These proposals will be targets, not set-in-stone demands. Lawmakers are expected to debate and negotiate tweaks, leaving the figures open to multiple changes.
The GOP plan largely will stop short of wading into the hardest part of the tax code, which is eliminating breaks that businesses and families use to lower their taxes. Republican leaders want Congress to debate those changes and make them later in the process. Only a few will be named in the document Wednesday.
Tax proposals from past White House teams, led by Republicans and Democrats, have included hundreds of pages of details and line items, specifying precisely which tax breaks should be eliminated and how much it would cost to add a new benefit.
The Trump administration decided to approach the issue much differently, worried that lawmakers would balk if they believed that the White House had cut a secret tax deal behind closed doors. But by deferring many of the toughest decisions to lawmakers, the White House gives more Republicans an opportunity to have a say in what the changes look like. It also opens up the process to prolonged bickering and foot-dragging, which has sidelined previous tax efforts for decades.
The primary tax break that the White House and Republican leaders aim to target is a provision that allows families and businesses to take a federal deduction for taxes paid to state or local governments. Eliminating this provision would have an outsize impact on states with relatively high tax rates — such as New York, California, Illinois and New Jersey — and it could, according to some estimates, raise $1.5 trillion in taxes over 10 years.
Lawmakers from those states are expected to fight vigorously to block the change, but the White House so far has refused to budge.
The White House plan also is expected to call, perhaps temporarily, for limits on the amount of interest that companies can deduct from their taxable income. Republicans are concerned that if firms can deduct their capital investments, such as new plants and equipment, while also deducting the interest on debt they borrow, they could end up paying little if any tax.
There are large corporate interest groups on both sides of this debate, and it is likely to spur a fight, particularly between manufacturers and banks.
Business groups have been largely unified as they push Congress to revamp the tax code, arguing the current system is outdated and overly burdensome. But as lawmakers dive into the specifics of which breaks to eliminate, that unity is likely to fracture, as individual industries and their lobby groups fight to protect specific provisions from which they benefit.
“We’ve been lobbying on tax reform since 1986, to be honest with you,” said James Tobin, chief lobbyist for the National Association of Home Builders. “In tax reform, someone’s got to win, and someone’s got to lose.”
The proposal to double the standard deduction is a potential source of tax relief for the middle class. But real estate agents and home builders, two of Washington’s powerful lobbies, plan to fight the idea. They worry that doubling the deduction would weaken incentives in the tax code for buying a home, a valuable boost for their businesses.
The White House wants to push all of the tax cuts through Congress by the end of the year, hoping it will lead to a jolt of economic growth, new hiring and better wages. Democrats have warned, however, that the outlines of the GOP plan so far would disproportionately help the wealthy, and many have said they will try to block tax cuts that add to the deficit or benefit the top 1 percent of households.
Trump met Tuesday with Republicans and Democrats on the House Ways and Means Committee, the panel in charge of writing tax legislation.
Several Democrats who attended the White House meeting said Trump repeatedly insisted that his plan would not help the richest Americans. But the Democrats said that the president confirmed plans to scale back or eliminate the estate tax, which is paid only by high earners, and that he would not commit that the plan would be “distributionally neutral” — that is, whether its effects would fall evenly along the income scale.
To blunt this criticism, Republicans are looking at ways to prevent the wealthy from drastically cutting their taxes through the plan, although they have not sorted out how this would work.
“It will be interesting to see what the final product is, because again they’re big on generalities: ‘This is going to be great,’ ” said Rep. Linda T. Sánchez (D-Calif.), who attended the meeting. “Very short on specifics. We want to see the distributional table, because we want to see who really benefits most.”
Trump also said corporations would pay a 10 percent rate on profits returned to the United States from abroad, according to multiple Democrats, and declined to detail how the costs of the plan would be offset to avoid ballooning the federal deficit.
“He said, ‘Growth,’ ” Sánchez said. “And he said he thinks we could get to 6 percent growth. And most economists say we can’t guarantee 3 percent growth.”
Trump has repeatedly tried to pitch the tax changes as a way to benefit the middle class, trying to tap into public sentiment that the tax system disproportionately helps upper-income families.
More than 7 in 10 adults say the nation’s tax system already tends to favor the wealthy more than the middle class, with a 55 percent majority who “strongly” feel this way, according to a Washington Post-ABC News poll released Tuesday.
Of those polled, 51 percent said they expect that Trump’s tax plan will disproportionately benefit wealthy Americans.