On Saturday, administration officials offered confusing signals on which route Trump would pursue.
Treasury Secretary Steven Mnuchin on Saturday suggested Wednesday’s announcement would pursue a long-term overhaul of the tax code.
Mnuchin said one of the White House’s top priorities was to complete “comprehensive economic tax reform,” dramatically simplifying how people file their annual returns. He said he wants to allow many people to file their taxes on a “postcard.”
But on Sunday, Mick Mulvaney, director of the Office of Management and Budget, appeared to cast doubt on Mnuchin’s statements, saying the White House hadn’t decided whether to pursue a long-term or short-term tax overhaul.
He also said they haven’t decided whether to offset the rate cuts with other changes that would reduce the budget deficit. “I don’t think we’ve decided that part yet,” Mulvaney said on Fox News Sunday. “You can either have a small tax cut that’s permanent or a large tax cut that’s short-term.”
Mulvaney said the tax plan the White House will release Wednesday will include “some specific governing principles, some guidance, also some indication of what the rates are going to be.”
For his part, Trump on Saturday wrote on Twitter that “Big TAX REFORM AND TAX REDUCTION will be announced next Wednesday.”
Trump surprised Capitol Hill — and even some people within the White House — when he first announced the Wednesday deadline at an event last week. But even while he has promised the announcement will prove to be the starting point of tax reform, advisers have cautioned that it will offer broad outlines and leave some key questions unanswered.
The president has said an overhaul of the tax code is one of his biggest priorities, but top advisers have refused to provide details so far of how he will usher in the biggest tax cut in U.S. history — which he has promised — without piling on trillions of dollars in new federal debt.
He has said cutting taxes will grow the economy, lead to more hiring and bring trillions of dollars back into the United States that companies are now holding overseas to avoid taxation. Among the administration’s stated aims are to simplify the tax code for individuals and families, lower corporate tax rates and provide a major tax cut for the middle class.
Mnuchin, one of the key architects of the White House plan, also said that some ways of measuring the impact of the tax cuts would find that it would grow the debt in the “short term.”
Budget experts have forecast that Trump’s proposal could boost the economy but also dramatically expand the deficit because trillions of dollars in revenue would be lost over 10 years.
When asked about the deficit impact of the tax plan, Mnuchin said at an International Monetary Fund event Saturday that when accounting for the economic growth that would occur because of the tax changes, the tax overhaul “will pay” for itself.
But he also said that if these macroeconomic changes aren’t factored in, the tax plan would grow the deficit. An analysis that doesn’t factor in economic growth forecasts is called a “static” assessment.
“Under static scoring, there will be some short-term issues,” Mnuchin said.
Factoring in the macroeconomic impact of tax cuts is very controversial because it is very difficult to do. A number of conservative budget experts — including key congressional aides who write tax law — have said that the White House has an overly rosy view of what the economic impact of its tax cuts would be.
The deficit impact of tax cuts is vitally important because any plan that grows the deficit over the long term is much more difficult to pass through Congress. It would take a number of Democrats to support such a plan because Republicans only have 52 seats in the Senate. They would need at least 60 votes to get such a tax measure through. A tax plan that increases the deficit only in the short term needs only a majority Senate vote.
During the campaign, Trump proposed to reduce the corporate tax rate from 35 percent to 15 percent. He also proposed collapsing the seven personal income tax brackets into three, with rates of 12 percent, 25 percent and 33 percent, based on income levels. The proposal would also increase the standard tax deduction for individuals and married couples filing jointly.
He also wants to eliminate the estate tax and the alternative minimum tax. Trump has also proposed some sort of “reciprocity” tax that would hit imports from countries that have taxes or tariffs on U.S. exports.