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Trump seeks 15 percent corporate tax rate, even if it swells the national debt

The Post's Damian Paletta explains why tax reform is harder than it looks. (Video: Jenny Starrs/The Washington Post)

President Trump is pursuing a drastic cut in the corporate tax rate, a move that is likely to grow the national debt and breach a long-held Republican goal of curbing federal borrowing.

The president has instructed advisers to propose cutting the corporate tax rate from 35 percent to 15 percent, according to White House officials who said they were not authorized to speak publicly about the plan. The rate reduction — which independent budget experts say could cost the federal government $2.4 trillion over a decade — is larger than what House Republicans had proposed in their own plan.

White House officials said the president would make the announcement Wednesday as part of a release of broad principles to overhaul the tax code — days before a 100-day deadline Trump had given himself for achieving most top campaign goals. They are also expected to discuss changes to the personal income tax, among other aspects of the tax code, said two White House officials.

Trump has pledged that the tax cut in total would be the largest in U.S. history, and his advisers have said that the economic growth it stimulates would make up for any shortfall in revenue.

“The tax plan will pay for itself with economic growth,” Treasury Secretary Steven Mnuchin said Monday.

President Trump signed three executive orders on April 21 at the Treasury Department which are meant to spark reviews of tax and financial regulations. (Video: Reuters)

But any changes would have to be backed by Congress, and passing a sweeping tax cut plan that widens the deficit would be virtually impossible on Capitol Hill without bipartisan support, in the view of key players in both parties. Many Democrats have said they will not support such a plan, making Trump’s proposal a tough political sell from the start.

Republicans, meanwhile, have argued for years that curbing the deficit is a top national priority. And even members of the GOP who agree that tax cuts can significantly boost growth have acknowledged that any big tax cut would require raising other revenue or finding budget savings.

A House Republican tax plan endorsed by House Speaker Paul D. Ryan (R-Wis.), for example, would raise nearly $1 trillion by imposing a new tax on imports, frequently referred to as a border-adjustment tax. The White House flirted with the idea but appears to have moved away from it in recent weeks in the face of opposition from industry groups.

Mnuchin and National Economic Council Director Gary Cohn are set to meet with top Republican lawmakers Wednesday to discuss the administration’s tax plan.

“The administration has embarked in a very dangerous direction,” said Edward Kleinbard, the former chief of staff for Congress’s Joint Committee on Taxation. “If it is going to rely on the principle that tax cuts can pay for themselves, history has demonstrated that tax policies move the growth needle a bit but no more than that.”

Trump surprised lawmakers — and even many advisers — last week when he announced he would release details of his tax plan on Wednesday. Advisers said Trump is eager to make a mark on a top issue before the 100-day anniversary of his administration, after being frustrated by House Republicans over the failure to advance legislation to replace the Affordable Care Act.

But several House Republicans close to Ryan said that they were taken aback by the latest tax push. They said the president risked alienating the speaker and his allies on Capitol Hill if they got behind a proposal that had weak or fragile support in the chamber, and they expressed concern about Congress piling up too many issues this week, such as a revived effort to pass a health-care overhaul and keep the government funded while funneling money toward border security projects.

The Republicans also noted that Ryan has already outlined the House’s tax plan over the past year and secured buy-in from members on the general outline of rates and the inclusion of a border tax. Ryan’s plan proposed a 20 percent corporate tax rate.

Republicans familiar with the leadership’s thinking said Monday that House leaders see the 15 percent corporate rate as an understandable restatement of a pledge Trump made during the presidential campaign. But they cautioned that passing such legislation would be complicated and likely necessitate other tax hikes or spending cuts.

They expected the leadership, however, to agree with the broad points and spirit of Trump’s plan this week even as details and a path to passage remain unclear.

The Wall Street Journal first reported Trump’s request to cut the corporate tax rate to 15 percent Monday afternoon.

Businesses are projected to pay $340 billion in corporate taxes in 2018, roughly 10 percent of all revenue collected by the government.

At 35 percent, the United States has one of the highest corporate tax rates in the world, but most companies pay a much lower effective rate because the tax code is riddled with deductions.

Still, lawmakers from both parties have said the corporate tax rate must be reduced to help U.S. companies compete with firms headquartered in other countries and to prevent U.S. firms from moving overseas.

The Tax Policy Center, a nonpartisan tax group affiliated with the Brookings Institution and Urban Institute, has estimated that Trump’s corporate tax proposal, as outlined during the campaign, would cost $2.4 trillion over 10 years.

It also estimated that his entire campaign tax proposal would cost $7.2 trillion — figures that Trump aides have sharply criticized as failing to take into account the revenue generated by economic growth spurred by the tax overhaul.

Inside the White House, Trump has faced a debate about how far to go with his tax proposal. Trump also called for cutting the debt during the presidential campaign, and advisers such as budget director Mick Mulvaney was a major proponent of deficit reduction as a hard-line conservative in the House.

"He's not backing away from the supply-side agenda," said Stephen Moore, a senior economic policy expert at the Heritage Foundation who advised the Trump campaign, noting that there are "two competing ways of thinking about taxes inside of the White House."

Moore defined those groups inside the administration as “those who are deficit hawks versus those who don’t care about that. And those who don’t care about it seem to be winning out. Fifteen percent suggests a turn toward them.”

White House officials have said there are several basic principles to their tax plan. They want to simplify the tax code, cut the corporate tax rate, pass a middle-class tax cut and create a way to punish companies that move overseas and ship goods back into the country. They also want to encourage U.S. companies to move money back into the United States.

Trump’s push for unveiling his tax plan began last week during several meetings in the Oval Office during which he expressed his frustration with the slow pace of legislation on several fronts, including taxes, according to two officials who were not authorized to speak publicly.

Trump urged his top economic advisers, including Mnuchin, to ready a rollout for this week and to keep the details of the plan controlled as much as possible by Trump advisers and Cabinet members rather than by GOP lawmakers, the officials said.

As one of the officials described Trump’s outlook, “he wants high growth and high employment.”

Max Ehrenfreund contributed to this report.